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Will Higher Rates Snuff Out Rally?

On Wall Street investors began wondering if the action in both the stock and bond markets signaled that trouble was ahead.

The 10 year yield touched 6 month highs and the 30 year was at 7 month highs after heavy bond selling. (Yield and price are inversely related.)

The catalyst was the Fed's statement which contained little acknowledgment of a recent uptick in the economic data but focused squarely on high unemployment.

"The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment," the Fed said. The central bank also reaffirmed its commitment to buy $600 million in government bonds.

By the end of the session the S&P cut gains to end nearly flat after a late-day sell-off.

Some investors fear the bond and stock market action signals the worst; that the recovery remains fragile, unemployment will remain high and inflation is coming.

How should you position now?

Instant Insights with the Fast Money traders

I think investors have it wrong, says Brian Kelly. I think the run up in yields has forced investors out of the bond market and into the stock market. I think it’s all working according to plan and that it’s good for stocks.

I agree that the Fed is targeting the stock market, says Guy Adami. They’re willing to accept the higher interest rates in an attempt to trigger the ‘wealth effect.’

But because of rising bond yields the mortgage rate is expected to go above 5%, reminds host Melissa Lee. And the housing market is key to the US recovery. I can’t help but think QE2 is backfiring.

But rising mortgage rates can force people into the housing market, reminds Joe Terranova. If they see rates creep higher, they may go out and buy a house now.

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BUST BUY....HOLIDAY SHOCKER

The Fast Money traders spent Tuesday parsing through thelatest earnings from Best Buy, after the company's big miss caused havoc on the Street.

A surprise drop in sales really triggered investor anxiety, with the company citing weakness in "TVs, mobile computing and gaming software."

And to make investors all the more jittery, they added “We don’t have complete visibility to how customers will behave over the next several weeks.”

Are these issues company specific? Or are they an early warning of trouble to come? What’s the trade?

Instant Insights with the Fast Money traders

Joe Terranova of Virtus wouldn’t touch this stock. "This is a huge miss," he explains on CNBC's Halftime Report. "Consumer electronics are hot yet Best Buy sales are down and – perhaps even worse - inventory growth is up. I suspect the stock will have problems for many weeks to come."

OptionMonster Jon Najarian is bullish - he's a buyer. "Best Buy generates impulse buys," he reminds especially into the holidays. "That’s what I think they mean about not having complete visibility." In other words are some people going to wait to the last minute to go electronics shopping.

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And he thinks store traffic will increase substantially right before Christmas. "After Dec 17thAmazon ends free shipping – from that date forward I’d expect to see volumes go up at Best Buy stores."

Patty Edwards of Trutina suggests taking a wait and see approach. "Best Buy does well when there’s a new technology that they can demonstrate to their customers," she says. "But right now there’s no technology that people need to go to store to get. 3D TV’s just aren’t there yet."

Brian Kelly sees Best Buy as a longer-term story. Despite their largely brick and mortar strategy, he thinks people that buy electronics like to have a touch and feel experience. In other words, some shopper won't buy electronics online. "Also Best Buy has strong competition from Walmart ," he adds. But once Best Buy adjusts they should do fine."


What do you think? We want to know!


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SECOND DERIVATIVE TRADES

Looking at the second derivative movers off of Best Buy's results, the desk noticed that investors slammed Radio Shack and HHGregg likely because Best Buy said it was losing share to big box discounters.

What's the trade?

I’m a buyer of Walmart , says Brian Kelly. It seems to me that big box Best Buy references is Walmart.


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EAR TO THE WALL: IS OBAMACARE DEAD?

Is Obamacare dead on arrival? Earlier in the week a Virginia judge ruled against the legislation; questioning whether the federal law's requirement that citizens buy health insurance or pay a penalty is constitutional.

The justice department will appeal - but chatter suggests this could be an Achilles heel for the President’s plan.

What must you know and how should you trade? Find out from Wedbush Securities analyst Sarah James. Watch the video now!




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Trader disclosure: On December 14th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Adami's wife works at (MRK); Terranova Owns (UPL), (C), (PEP), (OXY), (GS), (NKE), (VRTS); Terranova Owns (GLD) puts; Weiss Owns (DVN), (COP), (HK), (QCOM), (VZ), (MEE), (SWC), (AKS), (NIHD), (TBT), (UUP), (JWN), (VRML), (NIHD); Weiss Owns (NFLX) puts

For Brian Kelly
Accounts Managed by Kanundrum Capital Own (AAPL)
Accounts Managed by Kanundrum Capital Own (DE)
Accounts Managed by Kanundrum Capital Own (FCX)
Accounts Managed by Kanundrum Capital Own (GLD)
Accounts Managed by Kanundrum Capital Own (MCP)
Accounts Managed by Kanundrum Capital Own (TBT)
Accounts Managed by Kanundrum Capital Own USD
Accounts Managed by Kanundrum Capital Own (JJG)
Accounts Managed by Kanundrum Capital Own (GDXJ)
Accounts Managed by Kanundrum Capital Are Short Euros
Accounts Managed By Kanundrum Capital Own (WMT)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (ALK)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EPR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (MGRC)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Mark Mahaney
Citi Employees Own (GOOG)
Citigroup Global Markets Or Affiliates Owns 1% Or More Of (AKAM), (NFLX), (YHOO)
Citigroup Global Markets Or Affiliates Has Managed Or Co-Managed Offering Of (PCLN) In Past 12 Months
Citigroup Global Markets Or Affiliate Received Investment Banking Compensation From (PCLN) For Services Provided In Past 12 Months
Citigroup Global Markets Or Affiliate Received Non-Investment Banking Compensation From (MWW), (AMZN), (GOOG), (EXPE), (YHOO) In Past 12 Months
(PCLN) Is Or In Past 12 Months Was A Client Of Citigroup Global Markets
(MWW), (GOOG), (AMZN), (EXPE), (YHOO) Are Or In Past 12 Months Were Non-Investment Banking Clients Of Citigroup Global Markets (Securitites-Related Services)
(MWW), (GOOG), (AMZN), (EXPE), (YHOO) Are Or In Past 12 Months Were Non-Investment Banking Clients Of Citigroup Global Markets (Non-Securities-Related Services)
Citigroup Global Markets Is A Market Maker In (MWW), (AKAM), (OPEN), (GOOG), (PCLN), (AMZN), (EXPE), (YHOO)
Citigroup Global Markets Has A Significant Financial Interest In Relation To (GOOG), (AMZN), (EXPE), (YHOO)
Citigroup Global Markets Or Affiliates Owns 5% Or More Of (YHOO)

For Scott Nations
Nations owns (SPY)

For Sarah James
Wedbush Securities Is A Market Maker In (HUM), (CNC), (MOH)
Wedbush Securities Is A Market Maker In (HUM), (CNC), (MOH)
Seymour owns (PBR), (AAPL), (F)

For Barry Ritholtz
FusionIQ's Average Holding Period During Current Environment Has Been 4-8 Months
FusionIQ Owns (C), (SU), (ACI) for Clients

For Daniel Ives SOT
FBR Capital Markets Is A Market Maker Or Liquidity Provider For (RVBD)

For Taped Piece/SOTS
Funds Managed By Dennis Gartman Owned Gold On 6/28/10
Schiff Owned Gold On 2/19/10

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