On Wednesday of this week, in the afternoon, many believe that the Federal Reserve will raise rates again for only the second time in over a decade. It is widely believed that it will be a quarter point increase, which is minimal considering the current interest rate level. At focus will be weather the Fed makes any comments or hints as to the pace at which they will raise rates in the future. Will they start a consistent quarter point each meeting? Will they leave it flexible and only make hints as to a future of rising rates? That part is not certain but lets take a look at the areas of the market that will see volatility from any Fed decision.
The most obvious area is bonds. Now, for stock traders we tend to gravitate to the ETF (NYSE: TLT). It is by far the most common and liquid bond related product. In fact many have already made their bets on the price of long term bonds. Since the last Fed meeting the price of TLT has dropped over 10%. There is no doubt that tomorrow will bring even more volatility to this ETF.
Next up is Gold which, again stock traders can look at the most popular ETF (NYSE: GLD) as a way to participate directly. Now, here too we see the decline since the last Fed meeting as investors shifted money into Financials. Gold is always volatile around Fed meetings and should again provide much volatility for day traders, short term investors, as well as long term investors.
Drilling down to individual stocks and sectors, you can always count on the interest rate sensitive areas to see increased volatility. Utility stocks are very sensitive to interest rates as most of them all carry substantial amounts of debt. Real estate stocks as well can see increased volatility on Fed day but tend to be a little more muted than the others.
If you are one who likes to participate in Fed day as a day trader, or simply to look for opportunities in the long term, there is no doubt that tomorrow, along with all of 2017 will provide these opportunities.