The stock indexes sold off on Wednesday, ahead of the European Central Bank interest rate announcement On Thursday morning and news conference by its head, Mario Draghi. The DJIA lost 158 points to close at 17,730 while the S&P 500 was lower by 23 points to close at 2,079. The Nasdaq lost 33 points to finish at 5,123 and the Russell 2000 was lower by 12.47 to close at 1,192.
It's extremely difficult to understand what Janet Yellen said in her speech on Wednesday: "When the Committee begins to normalize the stance of policy, doing so will be a testament, also, to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession. In that sense, it is a day that I expect we all are looking forward to."
Yellen did not mention yesterday's recessionary ISM number. In addition, Atlanta Fed President Dennis Lockhart said there was a "compelling" case for a December rate hike on Wednesday.
Are we missing something here? The Atlanta Fed just cut its fourth quarter GDP forecast to 1.4% on Tuesday from 1.8% last Wednesday and lower than its 2.2% forecast from less than two weeks ago.
Yet, it appears that interest rates are going to be raised on December 16. Traders and investors alike should prepare for an extremely volatile stock market with a downward trending bias. Raising rates into a recession that is on the horizon makes no sense at all.
In the meantime, we will have the jobs report on Friday, the last jobs report before the rate announcement. Prepare for the unexpected.
As mentioned on Tuesday, we bought the ProShares Ultra VIX Short-term Futures ETF(UVXY) - Get Report . We sold that position on Wednesday for a nice 8% profit. We go into Thursday with a heavy cash position, not knowing how the euro will react and what Draghi will say before the market open.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.