Episode 30: Building Wealth Podcast with Steven Sitkowski
Interest Rates, Strong Earnings, and Understanding Implied Volatility
The Federal Reserve raised interest rates—but after an initial selloff, the stock market recovered.
Why?
In Episode 30 of the Building Wealth Podcast, Steven Sitkowski breaks down the market's reaction to the latest Fed decision, the strength of corporate earnings, technology's continued momentum, and what investors should watch as markets remain heavily influenced by economic and geopolitical news.
He also answers an options trading question about implied volatility and explains how he uses it to determine whether an option may be too expensive.
How Should Investors Read a Fed Announcement?
Steven explains that investors can look at a Federal Reserve announcement in three stages.
First comes the actual interest-rate decision. Then comes the Fed chair's press conference, where comments about inflation, employment, and the economy can significantly influence investor expectations.
But Steven argues that the third stage can be even more useful: watching how the market reacts the following day.
In this episode, he explains how stocks initially dropped after the Fed's press conference before recovering later in the session. The following day, the market moved higher as investors had more time to digest the Fed's message.
Strong Earnings Continue to Support Stocks
Despite concerns surrounding interest rates, inflation, and geopolitical uncertainty, Steven continues to point to corporate earnings as one of the market's biggest strengths.
He describes the current earnings environment as exceptionally strong, with AI and AI-related spending contributing significantly to growth.
Future earnings expectations discussed in the episode also remain strong. Steven highlights projected earnings growth of approximately 27% for the third quarter and 25% for the fourth quarter.
That earnings growth matters when thinking about stock valuations.
A stock can rise while its P/E ratio falls if earnings are growing faster than the stock price.
Steven points out that P/E ratios have fallen even as stocks have moved higher, challenging the idea that rising markets automatically mean stocks are becoming more expensive.
Technology and AI Remain Market Leaders
Technology remains one of the strongest areas of the market.
At the time of recording, Steven notes that the technology sector was up more than 26% year to date, making it one of the few sectors outperforming the broader S&P 500.
AI remains a major part of that story.
The episode discusses continued AI investment, data-center development, and strong earnings from companies benefiting from the technology boom. Steven also highlights AMD reaching the trillion-dollar market-cap level discussed in the episode.
At the same time, he acknowledges the growing debate surrounding AI risks and how quickly the technology is developing.
What Is Implied Volatility in Options?
The final section of Episode 30 focuses on an important concept for options traders: implied volatility.
Implied volatility can affect how expensive an option is.
Steven compares the current implied volatility of an option with its average implied volatility over the previous year. This gives him additional context for determining whether an option appears reasonably priced or unusually expensive.
The principle is simple: just as you wouldn't want to overpay for a house or car, you don't want to unnecessarily overpay for an option.
Steven shares his personal guideline: if current implied volatility is more than 20% above its one-year average, he considers straight calls or puts too expensive to buy and would rather wait for volatility—and potentially the option's price—to come down.
What Should Investors Watch Next?
Although the market has recovered from its initial reaction to the Fed, uncertainty remains.
Steven continues to watch Treasury yields, oil prices, inflation, consumer sentiment, and geopolitical developments.
Technically, the S&P 500 remained slightly above a rising 50-day moving average at the time of recording, which Steven describes as mildly bullish. He also identifies a wedge formation that could eventually lead to a breakout in either direction.
Meanwhile, the VIX remained near the lower end of its typical range, suggesting relatively little fear in the market despite the uncertainty.
Key Takeaways from Episode 30
The market's reaction after a Fed announcement can matter as much as the initial decision.
Strong corporate earnings continue to provide support for stocks.
Technology remains one of the strongest-performing areas of the market.
AI spending continues to contribute to earnings growth.
Strong earnings can cause P/E ratios to fall even while stock prices rise.
Treasury yields, oil prices, and inflation remain important factors to watch.
Implied volatility can help options traders evaluate whether an option may be expensive.
Steven uses a 20% threshold above average implied volatility as his personal guideline before avoiding straight calls or puts.
Episode 30 of the Building Wealth Podcast with Steven Sitkowski shows why understanding both the broader market and the mechanics behind individual trades matters.
From Federal Reserve decisions and earnings growth to implied volatility, understanding what is driving prices can help investors approach changing markets with more context and discipline.
FAQs
What is implied volatility in options trading?
Implied volatility reflects the market's expectations for how much a stock may move and is an important factor in options pricing. Higher implied volatility can contribute to more expensive option premiums.
How does Steven Sitkowski use implied volatility?
Steven compares current implied volatility with its average over the previous year. In Episode 30, he explains that this comparison can help determine whether an option appears reasonably priced or unusually expensive.
When does Steven Sitkowski consider an option too expensive?
Steven shares a personal guideline of avoiding straight calls or puts when current implied volatility is more than 20% above its one-year average. In that situation, he prefers to wait and see whether implied volatility comes back down.
Why can P/E ratios fall while stock prices rise?
A P/E ratio compares a company's stock price with its earnings per share. If earnings grow faster than the stock price, the P/E ratio can decline even while the stock itself moves higher. Steven discusses this dynamic as part of the strong earnings environment in Episode 30.
Why are corporate earnings important for the stock market?
Corporate earnings show how companies are performing financially. Steven identifies strong earnings growth, particularly in areas benefiting from AI-related investment, as an important factor supporting the market despite other economic uncertainties.
What is the Building Wealth Podcast with Steven Sitkowski about?
The Building Wealth Podcast with Steven Sitkowski helps investors better understand the stock market, investing, wealth building, options trading, and economic trends. Drawing on more than four decades of experience in the financial industry, Steven Sitkowski shares practical market insights, investment education, and strategies designed to help individuals make more informed financial decisions.
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