Yo Pit Crazies,

I was thinking of short-term trades over the weekend and I kept returning to this question …

Why is the market not pricing a move this time?

For previous Fed meetings and CPI numbers, traders bid up the short-term options to the mid-20% volatility range.  

Not so this time … in fact it is in the low teens. Check it out:

Above is the SPDR S&P 500 Trust ETF (Ticker: SPDR) term structure. It’s showing not much is happening. Granted, there was a nice selloff on comments from St. Louis Fed President James Bullard last week, but you would think the mid-20% area would be back.

There is a reason it’s not …

The Fed Is Going to Stay the Course

Traders keep the hope alive that there will be a pivot in the short-term and are placing bets on that.

I don’t see that happening.

What I do see is the Fed will keep the new lower pace of rate hikes and adjust later … just like they said they would since the need for credibility after last year’s transitory inflation snafu.

Inflation is slowing somewhat, just not as fast as anyone wants. That also takes hyper moves – also known as “parabolic” – off the table, which should bring lower volatility. And stable movement will be better for equities.

Right now, the lower vol into an event means we will be closer to 410 SPY than 400 by the end of the week.

Equity momentum trades should look good into Friday’s close. – AG