The S&P 500 ETF (SPY) traded up 0.5% on Tuesday, but fell into the close over fears of of more geopolitical tensions in Europe. Ultimately, the ETF ended lower on the day by 0.1%, while oil prices slipped 2.75%.
It's surprising that oil hasn't traded better, Steve Grasso, director of institutional sales at Stuart Frankel, said on CNBC's "Fast Money" TV show. If the commodity can't rally in this type of environment, can it rally it all?
The dollar's rapid rally may also play a role in the decline of oil prices, according to Tim Seymour, managing partner of Triogem Asset Management. The dollar is approaching the highs it made in March, and if investors continue their "flight to safety," bonds and the dollar are likely to continue rallying regardless of the Fed's actions.
Dan Nathan, co-founder and editor of riskreversal.com, said it looks like the dollar is about to break out to the upside, which will weigh on oil prices and commodities, and will also act as a headwind to corporate profits.
In fact, the recent rally in the dollar and bonds is effectively a form of monetary tightening, which might take the rate hike off the table for the Fed this December.
Following the Paris attacks, investors rapidly bid up stocks, effectively betting that the Fed won't raise rates, Grasso added.
Howard Lutnick, chairman and CEO of Cantor Fitzgerald, and chairman and CEO of BGC Partners, said the Fed is likely to hike in December, but the party 25 basis points shouldn't have much of an impact on the U.S. economy. The economy "will continue to pound forward" in a slow and steady manner, he said.
The U.S. dollar is likely to continue higher as a result of higher interest rates, Lutnick added. It could even surge to new highs over the next several years. The world economy is doing okay, and Europe is starting to recover. A growing European and U.S. economy should help to offset the impact of a continued rally in the U.S. dollar.
Karen Finerman, president of Metropolitan Capital Advisors, agreed with Lutnick, saying the Fed should get the rate hike out of the way and do it this December.