Tradovate Futures Trading Blog

Should E-Mini Stock Futures Traders Fear A Fed Rate Hike?

Posted by Kira Brecht on June 14, 2016 at 8:30 AM
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Tick tock. The calendar is inching toward the Federal Reserve's next meeting on June 15. The Fedspeak is coming fast and furious.

First the April FOMC meeting minutes, which supercharged expectations that the June meeting is "live" for a potential interest rate hike.  Next, a bevy of Fed official's comments are hitting the newswires with headlines reiterating the central banks intention to hike interest rates two or three times this year and reaffirming there are more reasons to hike than hold policy steady.


The Fed is seemingly changing its position on rate hikes more often than a trader these days.


The CME Group's FedWatch Tool reveals a 26% probability of a rate hike at the June meeting and a 53% chance in July, up significantly from last month's readings.


Federal Reserve monetary policy is a key driver for many markets, including e-mini S&P futures, gold futures and dollar index futures. Fed meeting results, press conferences, minutes and speeches and of course, ultimately policy decisions inject high-octane fuel into futures markets at times. This includes whipsaw spikes higher and lower and also can be a major factor behind entire trends.


Extremely loose and historically accommodative Fed monetary policy has been an underlying bullish driver for the stock market in recent years. The current bull market in stocks – measured by the S&P 500 index - began in March 2009. The Fed knocked its benchmark federal funds rate down to zero to 0.25% in December 2008 and held it there until December 2015, when it edged the rate marginally higher to 0.25-0.50% - its current level. See Figure 1, a monthly chart of the S&P 500 index.




Will the continuation of the interest rate hiking policy began in December spell the death knell of the bull trend in U.S. stocks? Probably not.


Market analysts like to point out that the Fed's willingness to raise interest rates is a sign of confidence in the economy. Also, rising interest rates, at least early in the rate hike cycle, are not expected to derail the equity market bull run, given their extremely low level by historical standards. We aren't talking about rates in the 3%, 4% or 5% range. The funds rate is still south of 1%.  


In the big picture, even a hike to 1.00%, still leaves the federal funds rate at a historically low level. The last interest rate hike cycle peaked out at 5.25% in June 2006. A far cry from 0.25%.


Drilling down: the impact on E-mini futures

Many e-mini traders are short-term traders –intraday traders or swing traders. For the short-term trading crowd, Fedspeak is good for business. A Fed on the move means volatility and volatility can equal opportunity.


E-mini traders shouldn't fear a Fed rate hike this summer. Embrace the opportunity for price movement. Hone your trading strategy. Circle your calendar for dates and times that Fed officials are speaking and of course the big FOMC meeting dates and prepare for some market fireworks this summer.


Mark Your Calendar

Dates of the upcoming FOMC meetings:

  • June 14-15 * meeting with a press conference
  • July 26-27
  • September 20-21*
  • November 1-2
  • December 13-14*

Read more:

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