US Stocks Tapping at Bear Market Territory on Uncertainty

US Stocks Tapping at Bear Market Territory on Uncertainty

Stock Market’s Negative Reaction to Fed is “Overblown”

$DIA, $SPY, $QQQ, $RUTX, $VXX

US Treasury Secretary Steven Mnuchin said Thursday that the negative stock market reaction following the Fed’s rate hike this week was “completely overblown.”

Secretary Mnuchin said the stock market overreacted, with computerized program trading taking over and driving stock prices down further.

In a TV interview, Secretary Mnuchin said that he believes markets were disappointed in Fed Chairman Powell’s comments at a news conference following the meeting.

The Fed boosted its Key policy rate for a 4th time this year but lowered its projections for further rate hikes from 3 to 2 in Y 2019. This failed to calm investors’ concerns that the FOMC is not taking into account warning signs that the economy is slowing.

“I think the market reaction is completely overblown,” Secretary Mnuchin said, noting that the US economy is still projected to out-perform most other countries next year.

Secretary Mnuchin said The Trump Administration still believes it can achieve 3% annual growth this year and next year as well.

He said that investors were missing the fact that while the Fed’s median forecast was for 2 more rate hikes next year, the Fed’s updated projections showed that a number of Fed officials have trimmed their expectations of how many rate hikes will be needed in the current credit tightening cycle.

The TreasurySecretary said investors were also overly worried with the Fed’s current program to trim its balance sheet from the $4.5-T record level it hit when it was buying Treasury securities and mortgage-backed bonds to lower long-term rates.

“The good thing about them downsizing the balance sheet now is it gives them capacity if they need to do something later in the year or next year,” Secretary Mnuchin said.

On the issue of whether the current trade negotiations between the United States and China will be able to reach a deal to avoid more penalty tariffs, Secretary Mnuchin expressed cautious optimism.

“We have been having ongoing trade discussions by phone over the last few weeks,” he said. “We are moving forward with those discussions and trying to reach an agreement … which covers the whole range of issues.”

Thursday, the major US stock market indexes finished at: DJIA -464.06 at 22859.60, NAS Comp -108.42 at 6528.41, S&P 500 -39.54 at 2467.42

Volume: Trade on the NYSE came in at 1.4-B/shares exchanged

  • NAS Comp -5.4% YTD
  • DJIA -7.5% YTD
  • S&P 500 -7.1% YTD
  • Russell 2000 -13.5% YTD

HeffX-LTN’s overall outlook for the major US stock market indexes is Bearish in here. Options expiry is Friday.

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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