Yahoo Finance Don't play along with the Fed's word games
With the Fed scheduled to release it’s always anticipated Fed statement on Wednesday afternoon, Wall Street is again playing its favorite word game.
Largely, traders will dissect the language used in the release in an attempt to discern subtle shifts in tone that, in turn, may signal a time horizon for a rate increase. “Sometimes it comes down to adverbs,” notes Zach Karabell, head of global strategy at Envestnet. “Fed watching has become this generation’s equivalent of Pravda watching,” a reference to a 1980’s phenomenon, when the world would parse through the language of the Communist newspaper Pravda in an attempt to discern the thinking inside the Soviet Union.
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However, Karabell added that investors who play the Fed are playing a losing parlor game. “Barring a massive shift in the global economic system, we’re not looking at a dramatic change, when the Fed hikes rates.”
In other words, Karabell thinks that unless you’re a trader and comfortable moving in and out of positions with aplomb, repositioning in anticipation of a rate hike will likely do more harm than good. “Once the novelty fades the Street will realize we’re in a global environment of rates,” Karabell said, meaning that dynamics from around the world will be the prevailing catalysts affecting both bonds and stocks.
Therefore a long term theme that was investable before a rate hike should remain investable afterwards. Of course, a hike is coming, rates won’t stay at historic lows indefinitely. However once they come, “I think you’ll find this more a tempest in a teapot than whole new world,” said Karabell.
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