How to Play the New Hawkish Fed

Kevin Cook Published on June 13, 2018

The FOMC is poised to raise the Fed funds target rate by a quarter point in about an hour. And this is with over 95% certainty as this morning's PPI inflation data came in hotter than expected.

But what market players will be most focused on is the "dot plot" of the pace of future hikes. Will they show that two more rate increases are more likely this year?

Or will they show that some committee members think the economic growth and inflation data warrant 3 more hikes?

In the video that accompanies this article, I go over the market psychology of large investors and why any fear-driven stock market sell-off about the Fed's views should be seized as a buying opportunity.

In addition to explaining the things that investors are worried about, like a flattening yield curve and rising inflation data, I give my 3 probability-weighted scenarios for the stock market's reaction.

I also share some wisdom from one of my favorite economists, Brian Wesbury of First Trust.

While I have been an astute Fed-watcher for a couple of decades, I'm leaning on Brian here to help us navigate what level of interest rates this economy can handle and still support expansion and investor optimism.

I come away completely confident in my conclusion to buy whatever sell-off unfolds over the coming days, or weeks.

And some of my favorite stock targets will be Alibaba (BABA - Free Report) , Lam Research (LRCX - Free Report) , Centene (CNC - Free Report) , and Edwards Lifesciences (EW - Free Report) , the latter two which have been making great new all-time highs this month.

I may even add some more CRISPR Therapeutics (CRSP - Free Report) as the fear about "gene editing gone wrong" gets over-done.

Disclosure: I own BABA and LRCX shares for the Zacks TAZR Trader portfolio and CNC, EW, and CRSP for the Zacks Healthcare Innovators portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and Healthcare Innovators services. Click "Follow Author" above to receive his latest stock research and macro analysis.

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