Friends
It was an eventful “Fed” day for the markets. First, at the conclusion of the FOMC meeting the Fed announced that they would be raising interest rates by 50 basis points taking the Fed Funds rate to .75% -1.00%. Also announced was that the Fed would begin reducing the balance sheet in June by $47.5 billion for three months and then more thereafter. None of this was very surprising and markets swung from positive to negative for the moments before the Fed Chair’s press conference. At the press conference Chair Powell reiterated that the Fed was committed to firmly fighting inflation, and that though they can only affect the demand side of the equation, they were committed to doing so. Then the Fed Chair mostly ruled out the likelihood of anything more than 50 basis point rate hikes in coming months hinting that the next 2 meetings might include 50 basis point hikes but nothing more drastic. It appears that the Fed would like to get the Fed Funds rate to about 2.5% by year end.
Now, how did the markets react? Stocks rallied during and after Powell’s press conference as traders appeared to be relieved that the Fed did not have anything more drastic/hawkish up their sleeve with regards to near term monetary policy. More than bulls feeling dramatically emboldened, the bears might just have been caught a little offsides. Whatever the case stocks soared higher. Are market participants more comfortable now that they believe they know the Fed’s course? Perhaps, but remember the Fed has embarked on a battle we haven’t seen in decades so there are going to be a lot of ebbs and flows along the way. I’m not trying to rain on today’s parade, but maybe just curb the enthusiasm a bit.
By the close, the Dow Jones Industrial Average was up 932 points to finish the day at 34,061. The S&P 500 was up 124 points to close at 4,300. The Nasdaq Composite Index was up 401 points to close at 12,964. Gold was up $14 to trade at $1,885 per ounce, while oil was up $5.67 to trade at $108.08.
As for bonds, they rallied on the news as perhaps the bond market has basically priced in this year’s move in rates. We will see. It was a wild afternoon for the Fed and the markets. Let’s see if the bulls can provide any follow through the rest of the week. Stay tuned.
Have a nice evening everyone.
