The Fed is meeting today and tomorrow and is expected to announce at least a 50 basis point interest rate increase tomorrow at 1:00 pm CST.

If they do not follow the “expected” script in either deed or in subsequent explanatory remarks, the market could react violently in either direction.

It’s very difficult to make predictions on what to do in these situations because in order to be correct from an investor point of view you have to be right both about the outcome (interest rate increase) and how the market is going to react to that new interest rate.  For most things that means we have about a 25% chance of getting it right (.5 x .5).

Far better to trade using quantitative rules that have demonstrated edge and trust the law of large numbers.

So where does that put us in preparation for the current meeting?

Monday’s 4% downdraft was a big enough move to cause substantial buying for the mean reversion strategies.  This means that further moves down in the market will also be substantially reflected in the portfolio.

However – there is still ammunition to be spent to buy further if we go even further down post-announcement.  We shall see.

On the other hand, if the market recovers and has a rally, the portfolios will participate handily and will use the rally over the next few days to exit their positions at a handsome profit.

Either way the portfolios are going to come out ahead of the market – they are both beating SP500 performance going into this by a very substantial margin – see the portfolio fact sheets for end of quarter updated information.

See you on the other side!