Today we are looking to increase the stop loss level on the recently opened CPU position.
Yesterday the US Federal Reserve lifted interest rates by 75 bps taking the federal funds rate to 2.25 percent to 2.5 percent. With more interest rate increases predicted in the future.
Interest rates increased, but the CPU share price fell. How can this be so when CPU Earnings Per Share (EPS) are directly linked to increasing interest rates?
The fall is all tied to interest rate expectations in the future, more specifically, yesterday Jerome Powell from the Fed planted the seed by hinting they may slow the pace of rate hikes after the next hike.
Investors are now watching to see if the Fed slows the pace of interest rate increases at its next meeting in September or if strong price gains pressure the central bank to continue with super-sized hikes.
Markets are always forward-looking, and a slowing in interest rate increases in the future or if interest rates peak earlier than anticipated this will lead to the market factoring in lower EPS growth and have an adverse effect on the recent strong uptrend of CPU.
The latest increase puts rates near Fed policymakers’ estimates of a neutral level that neither speeds up nor slows down the economy. If inflation remains elevated, the market’s prediction for future interest rate increases might be wrong. But you can not fight the market.
A good indication of the future direction of US interest rate increases is the US Government’s 10-year bond yield. As per the chart below, the yield may have topped out. So we will move the stop loss higher.
Trade Action
Stop Loss: 23.70
Increase stop loss level to $23.70
