Investors Can Fight the Fed All They Want. Don't Fight the Tape

Ignoring the Federal Reserve’s determination to keep raising rates and hold them there is a wildly profitable trade on Wall Street right now. It’s trying to swim against the rising market that carries risks.

“Fighting the Fed” has actually been a winning stock-market strategy for months. The S&P 500 Index is up 15% since the start of the fourth quarter and 16% from its October low, putting it within striking distance of the 20% threshold many investors define as the start of a bull market.

Meanwhile, the central bank has raised rates three times, says more hikes are coming and continually insists that it’s going to keep the fed funds rate high for a while. But to the stock market the reaction has been, who cares?

The bet seems to be that those hikes have been priced into stocks and that the Fed will actually be able to pull off a soft landing, where it tames inflation while the economy continues to grow. And that’s put rate-wary and inflation-worried traders in the challenging position of slamming head-first into the prevailing market momentum.

“What if the Fed actually wins? It appears it is,” said Adam Sarhan, founder of 50 Park Investments, who is long US equities, including battered technology shares like chip stocks. “Investors are rewarded when they align themselves with the underlying trend on Wall Street. Never fight the tape and keep your losses small.”