Dear {first_name},
Jerome Powell and the Federal Reserve must now tame the beast they created as they shift from encouraging inflation to having to control it. On Wednesday, the Fed announced they would speed up the pace of their tapering and that the economy is on a strong enough footing to take care of itself. Their announcement paves the way for 3 rate hikes next year beginning as early as March. Interestingly, after every Federal Reserve decision where they make a major policy change, there are three short-term market moves to be aware of; the action, the reaction, and the new direction. #1 Action - Day of announcement #2 Reaction - Day after announcement #3 New Direction - Friday at the close How have markets responded thus far to the Fed’s new hawkish tilt? Markets yesterday seemed to love Powell’s new positioning. The Dow Jones soared higher yesterday, up nearly 700 points (1.9%), the S&P followed suit, rising over 100 points and up 2% on the day. The Nasdaq jumped the most, rising 2.4% yesterday. The action caused market pundits like Jim Cramer to prematurely declare that the Santa Claus rally was underway. Today, however, was a different story as markets reacted to yesterday’s action. After climbing to new all-time highs in the overnight session, stocks were clobbered today. The Nasdaq dropped 2.47%, the S&P 500 dropped 0.87%, and the Dow Jones fell 0.7%. Tomorrow’s closing will provide more clarity on the new foundation. But there are certain takeaways that we want to pay attention to see how they play out in the coming days. Central Banks around the world are turning hawkish, signaling that the end is in sight for the free money party that’s taken place over the past 18 months. After the Fed’s hawkish turn yesterday, the Bank of England today decided to raise interest rates for the first time since the start of the pandemic, lifting its main interest rate to 0.25% from 0.1%. The decision comes as U.K. inflation hit a 10-year high last month. The Bank now expects inflation to stay at around 5% through most of the winter, reaching 6% in April 2022. Earlier this week we made the case that a turn toward more hawkish central banks could be very supportive of gold and silver prices. That prediction has been spot on over the past two days. Gold prices rose from $1758 to $1775 yesterday, and then followed through on that rise again today closing at $1800. This is a 3% move higher in just two days. Silver prices have reacted even more strongly. Silver is up 4.46% from its lows yesterday and closed today at $22.50. There are two leading indicators to watch that could point to a big upside in the coming months for gold and silver prices. In a precious metals bull market silver prices lead gold, and mining companies perform even better than silver. It’s why we should pay particular attention to the action in the Newmont Corporation (NEM). Newmont is the world’s largest gold mining company which today saw its share price surge a whopping 8.8% higher. When the largest cap miner sees this much flow, it's indicative of sector rotation in the market and could be a sign that we are witnessing a rotation out of equities and into precious metals. Stocks down and precious metals higher is a sign that Santa Claus may not be coming to town after all. | 