Here's why the market is acting like a Fed rate hike is finally coming

The Fed once again failed to send an unequivocally clear signal that it intends to raise rates in December. Still, the key sentence is here: "The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives."

That one word "some," which was not in the prior statement — at least indicates that the threshold for a rate hike is getting lower and lower.

If the Fed needs evidence the economy is strengthening, it seems to be there. GDP growth is improving, jobs are plentiful. Inflation is picking up. Heck, there's even modest wage growth.

And the market sure is acting like there is going to be a rate hike.

Stocks have already adjusted. The S&P 500 is 80 points (about 4 percent) off its historic high. The small-cap Russell 2000, which is more sensitive to interest rate hikes, is 10 percent off its historic high.

Janet Yellen
Charles Mostoller | Reuters
Janet Yellen

Interest-rate sensitive Telecom stocks are down 9 percent this quarter to the lowest levels since January. REITs are down 8 percent, the lowest levels since February.

And high yield ETFs (like HYG) are down seven days in a row.

Bank stocks (KBE) are up over 2 percent this quarter on the higher rates.

The dollar has staged a significant rally in October, though it is down the last two days.

My point is that as we get closer to the Fed rate hike, I think it's increasingly likely that the actual event will be a"sell the rumor, buy the news" kind of event, particularly if the market continues to correct.

What's abundantly clear is that the Fed will be moving at a glacial pace. One rate hike a year ago, one rate hike in December, anything slower than this and the Fed will be on hold, not in a hiking mode, and we'll all be well into retirement by the time we get anywhere near a 3 percent Fed funds rate.

There's a lot to look forward to, after the election and the Fed. Earnings have emerged from a long recession. The economy really is improving, though the data is not unequivocally better. And we are entering the best months of the year for the stock market, though heaven knows the traditional Q4 rally could be put off by the elections.

I can't wait for the election to be over.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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