Friends
As expected, the Fed raised rates a quarter of a point today. The fed funds rate now sits at 2.25%-2.50%. But, what was unexpected was the lack of dovishness in the Fed statement. Simply put, the Fed has a different view of the economy than the market does. Yes, the Fed did temper its enthusiasm for economic growth slightly by indicating that 2 hikes instead of 3 are likely for next year, but market participants want the Fed to surrender to the dark side of the force and declare that today’s hike was the last for now, and that they would let the economy prove itself going forward before any more rate hikes. In reality, that is likely what they will do, but their messaging left something to be desired.
Not surprisingly and a 350 point Dow gain turned into a 350 Dow loss by the close. For the day, the Dow Jones Industrial Average was down 351 points to close at 23,323. The S&P 500 was down 39 points to finish the day at 2,506. Gold was down $6 to trade at $1,247 per ounce, while oil was up $1.72 to trade at $47.96 per barrel WTI.
Bear markets are frustrating. Even apparent good news is met with disdain. Just as in bull markets when stocks rise on bad news, the opposite occurs during bear markets. Today’s action after the Fed hike and statement was probably more extreme than it should have been. That’s how things go during bear markets. Sentiment is a powerful thing. Perhaps all of this will result in the markets finally breaking away from the dependence that they have had on Fed policy. Even if it takes some pain, that would be a good thing for the long term.
Have a nice evening everyone.
