US Stocks Pause On FOMC’s Expected Rate Hike

US Stocks Pause On FOMC’s Expected Rate Hike

US Stocks Pause On FOMC’s Expected Rate Hike

$DIA, $SPY, $QQQ, $VXX

The FOMC raised interest rates by a Quarter point Wednesday and signaled a faster pace of increases in Y  2017 as the Trump Administration takes over with promises to boost growth through tax cuts, spending and deregulation.

The rate increase raised the target federal funds rate 25 bpts to between 0.50 and 0.75%.

Bond yields and the USD rose after the rate decision, stocks finished mixed with financials and tech the only 2 sectors to posting gains.

“In view of realized and expected labor market conditions and inflation, the committee decided to raise the target range,” the central bank’s policy-setting committee said in its unanimous statement after a 2-day meeting.

“Job gains have been solid in recent months and the unemployment rate has declined,” the Fed said, noting that market-based measures of inflation compensation had moved up “considerably.”

More significant was a fresh batch of Fed policymaker forecasts that indicated the current once-a-year pace of rate increases will accelerate next year.

Markets and the Fed appeared to be close on pricing with Fed futures markets pricing in at least 3and possibly three hikes, up from one to two prior to the meeting.

With President Elect Donald Trump planning a simultaneous round of tax cuts and increased spending on infrastructure, central bank policymakers shifted their outlook to one of slightly faster growth, lower unemployment and inflation just under the Fed’s 2% target.

The Fed’s median outlook for rates rose to 3 Quarter-point increases in Y 2017 from 2 as of September. That would be followed by another three increases in both Y’s 2018 and 2019 before the rate levels off at a long-run “normal” 3.0%.

That normal level is slightly higher from 3 months ago, a sign that the Fed feels the economy is still gaining traction.

The Fed continued to describe that pace as “gradual,” keeping policy still slightly loose and supporting some further improvement in the job market. It sees unemployment falling to 4.5% next year and remaining at that level, which is considered to be close to full employment.

 

US bond yields had already begun moving higher following the election and as expectations of the Fed rate increase solidified.

In the weeks following Donald Trump’s November 8th victory, Fed policymakers have said his proposals could push the economy into a higher gear in the year ahead.

The rate increase was the first since last December and only the 2nd since the Y’s 2007-2009 financial crisis, when the Fed cut rates to near Zero and deployed other tools such as massive bond purchases to stabilize the economy.

Wednesday, the 3 major US stock market indexes finished at: DJIA-118.68 at 19792.53, NAS Comp -27.16 at 5436.67, S&P 500 -18.44 at 2253.28

Volume: Trade was heavy, with 1.25-B/shares exchanged on the NYSE

HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.39) Bullish (0.31) Very Bullish (0.56) Bullish (0.31)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.34) Bullish (0.33) Bullish (0.35) Bullish (0.35)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.27) Neutral (0.06) Bullish (0.38) Bullish (0.36)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.43) Bearish (-0.34) Bearish (-0.29) Very Bearish (-0.67)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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