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The Implied Probability Of A March Rate Hike Just Hit 100%: Winners & Losers

Wayne Duggan

Three months after its first interest rate hike in a year, the Federal Reserve may already be poised for another hike during its upcoming meeting that begins on March 14. According to CME Group’s FedWatch tool, the market seems to have zero doubt that an aggressive rate hike is imminent.

It's Coming, And Soon

The Fed Fund futures market is currently pricing in a 90.8 percent chance of a 75–100 bps March hike and a 9.2 percent chance of a 50-75 percent rate hike. In other words, futures traders see a combined 100 percent chance of at least a 0.5 percent interest rate hike this month.

The current market expectations represent a major shift from just a week ago. At the beginning of March, financial markets were pricing on only about a 30 percent chance of a March hike. However, public comments by Fed Chair Janet Yellen and other policymakers in the past week strongly suggest the Fed plans to take an aggressive approach to interest rates.

Watching The Market Move

Of course, financial markets are reacting accordingly. The SPDR S&P 500 ETF Trust (NYSE: SPY) is already down 3.3 percent this month on fears that rising interest rates will lure investors away from pricey stocks and into fixed-income assets.

Despite the general market weakness, the SPDR Gold Trust (ETF) (NYSE: GLD) has held up relatively well so far this month, down just 1.0 percent. There is a widely-held belief among many investors that higher rates are bad for gold prices, but there is little historical correlation between the two.

Although interest rates should help boost bank net interest margins, the Financial Select Sector SPDR Fund (NYSE: XLF) is also down 1.2 percent on the month, but it remains up an impressive 24.6 percent since Election Day.

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Image Credit: By Federalreserve (_D810919) [Public domain], via Wikimedia Commons

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