$DIA, $SPY, $QQQ, $RUTX, $VXX
US Federal Reserve Chairman Jerome Powell’s 1st post-meeting press conference of Y 2019 left market expectations for a rate hike this year an Big Q, and raised the chances of a cut in Y 2020.
The Fed’s tone Wednesday cast doubt on the prospects of interest rates heading higher at all this year, after 9 hikes since Y 2015.
Its focus on risks to the global outlook and emphasis on tighter financial conditions in the Fed statement and Chairman Powell’s comments drove US equities North and pushed 2 and 5 year Treasury yields to the lowest since mid-January. With shorter maturities leading gains, the yield curve steepened. The 5- to 30-year gap reached about 57 bpts, the widest since February.
The market is very aggressively discounting any positive outcomes this year in areas such as domestic growth, trade and the global economy.
That said, Wednesday’s tone on both the policy rate and balance sheet is significant.
The language and the markers they put down all point to a very elevated probability that the December hike was the last hike in the cycle.
Fed watchers were surprised by the Fed’s latest signals on its balance-sheet unwind, which suggests it is closer to completion than expected.
For traders, the Fed’s line that it’s “prepared to adjust any of the details for completing balance sheet normalization” confirmed a shift in a policy unwind that has roiled the financial markets last December.
The bar for hiking rates even once in 2019 is now very high.
Rates traders cut what little positioning remained for a hike in Y 2019, and are gaining confidence in a Y 2020 easing of policy.
With the prospect of an economic slowdown ahead, we expect the Fed will be forced to cut rates 3X in Y 2020
Wednesday the major US stock market indexes came in at: DJIA +434.90 at 25014.86, NAS Comp +154.79 at 7182.59, S&P 500 +41.05 at 2681.01
Volume: Trade on the NYSE came in at 843-M/shares exchanged
- Russell 2000 +10.3% YTD
- NAS Comp +8.3% YTD
- DJIA +7.2% YTD
- S&P 500 +7.0% YTD
HeffX-LTN’s overall technical outlook for the US major stock market indexes is Neutral to Bullish