Playing the likelihoods during Fed changes

One of the big problems of macro investing is determining the odds when there are only a limited number of events. Macro investors often must make judgments when the sample set is well below the number thought appropriate by a statistician, the magic N=30. 

It may not always be pretty, but you must extrapolate with what is available based on some theoretical foundation. Investors form rational beliefs, not rational expectations. Beliefs can differ based on the same data, but only one can be correct as events unfold. 

Quantitative easing and tightening are a perfect example of the sample problem. We have four easing, two QE taperings, one quantitative tightening, and one QT tapering. This is little to work with, so reality has to be coupled with theory. Nevertheless, JP Morgan has provided a good visual as a guide. A single sample requires our theoretical intuition.

The general view is that stock returns will be weak and 10-2yr spreads will decline. The past is not destiny, but the market is already following a pattern of the past from the sample of one.