Friends
Today, the Federal Reserve released its policy statement after the two day FOMC meeting that began yesterday. There was really no change in the committees’ outlook, but one statement did catch our eye. It stated- “the committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” All righty, then. So basically, the Fed might buy more securities or they might not. Look, with the recent economic news, and unless the employment picture on Friday is much better than expected (and that doesn’t look likely), the Fed is destined to keep rates at these low levels for quite some time. Remember this part of the statement- “the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 ½ percent…”. As long as inflation remains contained, unemployment high, and Congress stymied, the Fed is likely to be accommodative for quite some time yet.
How did the markets take all of this? Well first of all, the 10 year treasury note is yielding a whopping 1.62%. As for stocks, the averages were down all day, prior to the Fed announcement, but continued to get worse into the close. For the day, the Dow Jones Industrial Average was down 138 points to close at 14,700. The S&P 500 was down 14 points to finish the day at 1582. Gold was down $13 to trade at $1458 per ounce, while oil was down $2.52 to trade at $90.94 per barrel WTI.
Of course this was the first trading day of May, so everyone will be chanting “sell in May and go away”. The problem with that is where is an investor going to go? The 10 year treasury note will pay you 1.62% and the bank will pay you about ¼%. The TINA market (there is no alternative) seems alive and well. An investor must ask herself, would I rather own the 10 year treasury note at 1.62% or would I rather own something like the shares of Pfizer which pays me a dividend of 3.5% for the next 10 years. TINA indeed.
Have a nice evening everyone.
