The Fed is behind the curve and has been for a while.
If this is what is driving them, then odds are they will try to squeeze in one or two hikes. In this scenario, the financial sector (XLF) and select financial stocks likely attracts bids. Last Friday, the XLF bounced off of September 2014 horizontal-line support and rallied further on Monday to literally sit on July 2015 declining trend line (Chart 4 below).
Should it come to pass, this will be an opportunity to unload XLF… or some other strategy using options. The cycle is getting long in the tooth, and the economy probably is not in a position to cope with higher interest rates, regardless they would be rising from near zero. This concern is depicted very well in the long end of the yield curve, with the 10-year yielding 1.7 percent.
Thanks for reading!
