Fed Meeting Focus
This is the first SEP update since the Iran conflict began and Brent crude moved above $100 per barrel. Rate-cut pricing shifted from a June cut and possible September move to one cut in December 2026, with none earlier. Brent rose about 2% on Tuesday to above $100 per barrel amid disruption risks in the Strait of Hormuz. Energy led the S&P 500, up close to 2%, with Exxon Mobil and Occidental Petroleum each up over 1%, while gold stayed above $5,000 per troy ounce. Delta Air Lines rose more than 4% after lifting first-quarter revenue growth guidance to high single digits from 5%–7%. American and JetBlue also gained. Goldman Sachs, IBM, and American Express each rose more than 2% in the Dow. Six of the S&P 500’s 11 sectors fell, while Johnson & Johnson and Amgen lagged.Market Positioning And Risks
Nvidia edged up after forecasting $1 trillion in AI chip revenue by 2027. KKR, Blackstone, and BlackRock rose 3%–5%. With the Federal Reserve’s decision only hours away, our entire focus should be on the new dot plot. While the market has priced in a rate hold, implied volatility is high, with the VIX index hovering near 20, reflecting significant uncertainty around future rate projections. Any hawkish surprise, like removing the single rate cut priced for December, will create sharp moves. The conflict keeping Brent crude above $100 a barrel is the primary driver of inflation fears and the Fed’s cautious stance. We should continue to use call options on the energy sector, which has been the clear outperformer with a nearly 15% gain year-to-date, as a core bullish position. Historically, sustained oil prices at these levels have pressured consumer spending, making protective puts on retail and transport ETFs a prudent hedge. We have seen a major shift in interest rate futures, which last month were signaling multiple cuts and now barely hold onto one for late 2026. This repricing makes derivatives on 2-year Treasury notes extremely sensitive to whatever Jerome Powell signals today. A hawkish press conference could easily send the 2-year yield, which was 4.7% last week, back towards the 5% level we saw in 2025. Despite the macro headwinds, there are pockets of strength we can isolate. Delta’s strong guidance suggests travel demand is holding up better than expected, and we can play this using bullish call spreads on airline stocks to limit risk from volatile fuel prices. The rally in financials like Goldman Sachs and American Express shows the market is not yet pricing in a severe economic downturn. The long-term AI theme continues, and Nvidia’s projection of $1 trillion in revenue by 2027 shows the scale of this opportunity. Given the stock’s high price and volatility, using defined-risk options strategies is the only sensible way to maintain exposure. The strong rebound in asset managers like Blackstone and KKR also signals that fears about their private credit books, a major concern in late 2025, are now subsiding. Create your live VT Markets account and start trading now.
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