What if the Fed surprised today, and instead of only announcing a reduction in its balance sheet, it also sent an uber-hawkish signal by hiking rates 25 bps, something which virtually nobody expected? While stocks would certainly suffer an adverse reaction, as the Fed confirmed that its intention was to burst one or more asset bubbles, it may be just what many in the market desire.
The reason for that is the active trader community has been growing increasingly bearish in recent weeks, and in anticipation of a potential downside shock as stocks trade at all time highs, it has been aggressively putting on hedges. One place where this is visible is in S&P 500 options where the put to call ratio has climbed to its highest level in more than two years according to Bloomberg.
This post was published at Zero Hedge on Sep 20, 2017.
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