Traders place historic Fed bets

History may not repeat itself, but it does often rhyme.?I'm Phil Rosen, and today we're breaking down what could be the largest Fed rate hike in decades.?

The last time the US central bank made a 100-basis-point rate hike, Paul Volcker ran the show. He's the really tall guy who smoked cigars, and he famously curbed historic inflation in the early 1980s — and also sent the US into a steep?recession.?

So yes, he got sky-high prices under control, but his policy maneuvers had consequences. It's a similar situation facing Jerome Powell today.??

Let's break down who expects the rhyme to get under way…

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1. Traders think there's a significant chance the Fed makes a historic move this month.?Expectations have jumped for the central bank to make its?first 100-basis-point rate hike?in decades, and Fed Fund futures contracts fluctuated wildly yesterday.

The?odds of a 1 percentage point hike were at 83%?early Thursday, but later dropped to about 45% following comments from Fed Governor Christopher Waller.?

"We don't want to make snap policy decision based on some?knee-jerk reaction?to what happened in the CPI report," Waller said.?

The Fed now has no choice?but to get aggressive with rate hikes, according to economist Mohamed El-Erian. He said a?100-basis-point hike?remains on the table for the July 26-27 meeting.

"Have no doubt: the latest inflation numbers are indicative of?rough seas ahead, particularly for the most vulnerable segments of society in the US and around the globe," El-Erian said.

And through it all, stocks are probably in for more pain. One day after revising its?recession forecast, Bank of America yesterday slashed its S&P 500 forecast to 3,600 —?the lowest on Wall Street.

"Equities are not adequately discounting a recession if we are already in one," BofA said.

In other news:

2. RBC recommends these stock picks as the risk of recession rises.?"Defensive" stocks are getting overpriced, analysts at the firm said, so these growth stocks present better potential as long-term winners.?See the list of 29 names here.?

3. A 33-year-old real estate investor who acquired 22 units in five years explained her strategy.?She separates her business into three phases: acquisition, stabilization, and optimization —?and each step helped her scale up her operations quickly.

4. Now is the time to buy the dip in these energy stocks, according to a hedge fund manager who's defined the market by staying afloat in 2022.?Harris Kupperman isn't concerned that stocks in the energy sector are cratering as oil demand stays resilient in the face of a downturn.?These are the five picks he's keeping an eye on.

5. Cannabis stocks jumped after a report that Senate Democrats are set to introduce a bill for federal decriminalization.?Shares of Tilray jumped as much as 20%, Aurora Cannabis spiked 10%, and Canopy Growth climbed 7%.?Here's everything you want to know.

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This newsletter was curated by Phil Rosen. Thoughts or questions? Sound off in the comments section below.