Stocks Recover Some Despite Fed Signal That Half-Point Hike Is

Thursday, April 7, 2022
author picture Liam Lambert
Video/image source : youtube, reutersco
Original content created by staff

Stocks Recover Some Despite Fed Signal That Half Point Hike Is Coming

Despite the fact that the Fed signaled that they were about to hike rates‚ Stocks still recovered some of their losses following their recent setback. What caused the market's recovery? It may have been a combination of Fed minutes and a statement from the central bank‚ as well as fighting in Ukraine. It's also possible that the negative effects of the hike are being delayed and that the market will continue its upward trend for some time.

Stocks recover from Fed minutes

The market recovered some following the Fed statement. After the announcement‚ the S & P 500 and the Dow Jones industrial average dipped into negative territory. However‚ they recovered to close the day 1% higher and 3% higher‚ respectively. The Nasdaq recovered from the lows‚ closing 3.7% higher. The Fed has signaled that it is preparing to raise rates once again‚ though the rate hike may be delayed until later this year. The delay in the response by the Fed has left investors thinking that aggressive policy tightening will be coming. According to Charlie Ripley‚ senior investment strategist at Allianz Investment Management‚ the Fed is now in agreement on raising interest rates next month‚ but the decision as to when will be made is still a subject for debate. But Powell has said that monetary tightening will happen after the asset purchases have been completed. Investors are closely following the Federal Reserve minutes‚ which are expected to show that policymakers are moving away from the traditional approach of gradual increases. They also indicated that there was a good chance of a half point hike this month and an aggressive unwinding of its balance sheet soon. Despite the signals‚ stocks are still down slightly from their highs‚ with the S & P 500 losing 0.1% and the Dow Jones Industrial Average dropping 0.2% year-to-date. The Nasdaq Composite COMP‚ which consists of rate-sensitive tech stocks‚ is down more than 2%. The Fed's policy statement and quarterly projections show a more aggressive approach to monetary policy. At least one half point hike is expected this year‚ and seven of the 16 policymakers favor a large increase. The minutes will give investors an idea of the approach policymakers took while weighing the implications of an increased interest rate on the economy. As such‚ the minutes could be a positive surprise for the markets. While the Fed's latest move is still far away from the monetary policy committee's next move‚ it's important to remember that it is treading a tightrope between allowing inflation to slow and not crushing consumer demand. In addition to this‚ monetary policymakers will likely be watching the job market closely‚ since wage growth is a major driver of inflation. When unemployment is rising‚ it will hurt consumer demand and may cause some investors to sell riskier assets.

Stocks recover from quarter-point rate hike

The market has rallied on the Fed's decision to hike interest rates by a quarter-point. Although the S & P 500 and Dow Jones industrial average initially dipped into negative territory after the announcement‚ they recovered to close higher and the Nasdaq surged nearly 4%. The next quarter-point hike may push the Fed's policymakers further into a hawkish corner. Traders should avoid basing investment decisions on the past‚ as history often contradicts predictions. Wednesday's rally was a resounding one for U.S. stock markets. After all‚ the Fed raised rates by a quarter-point and signaled at least six more hikes this year. While higher rates should lower stock prices‚ they also mean more expensive borrowing‚ which should slow the overall economy. But as the stock market rallied on Wednesday‚ investors put their money to work and bought stocks. The S & P 500 closed 2.2% higher than it opened. While the market may have experienced a pullback this month‚ it is not unprecedented in a bull market. Stocks have historically experienced such dips to recover after a quarter-point hike. On average‚ the market recovers 8.4% in the next 100 days. While the market would rally into the end of January‚ history shows that stocks will typically experience a 5% decline in February. That's because February is historically the second worst month for stocks. While stocks have recovered from a quarter-point rate hike‚ they have yet to fully recover from the shock of the hike. While many investors had feared the Fed might raise interest rates again‚ monetary policymakers have been cautious about the move. The Fed's tapering is a sign that the economy is healthy enough to withstand further tightening. The S & P 500 gained 11.5% during the 10-month period from mid-December 2013 to October 2014‚ which means the market is on the verge of a resurgence. There are two major risks to a sudden change in interest rates. First‚ the Fed needs to renew Jerome Powell's appointment. Second‚ the Fed will need to pick a new chair. The Federal Reserve is not supposed to be a political organization. Secondly‚ higher rates could hammer the already overheated housing market. Higher rates could trigger recession. While the Federal Reserve is trying to keep inflation low‚ a sudden increase could drive stocks down and send the economy into a recession. The second risk is that President Biden will retain Jerome Powell as Fed chair. Unlike Powell‚ the Fed does not follow a strict political agenda. And third‚ a higher rate hike could trigger a broader economic slowdown.

Stocks recover from Fed statement

After Powell's news conference on Wednesday‚ investors are looking for signs of more Fed rate hikes to come. After all‚ the stock market has suffered a significant downturn this year. The Dow‚ S & P 500 and Nasdaq Composite COMP are all down nearly 10% from their record highs. And‚ as investors seek to reduce risk‚ they've sold off leading cryptocurrencies like Bitcoin. While investors are looking for signs of a Fed rate hike‚ the market is still closely watching developments in Ukraine and Russia‚ which sent the indexes to intraday lows in late February. Although the Fed's statement was largely hawkish‚ the economic projections remained relatively neutral. While the Fed isn't taking extraordinary measures‚ they are taking a business-as-usual approach to rate hikes. But‚ even with all these positive signs‚ picking the reaction of the market remains tricky. But‚ if the Fed does indeed hike rates this year‚ it may be more appropriate for stocks than expected. The Federal Reserve's latest meeting came amid soaring inflation. The central bank has ended its accommodative policy and now plans up to six more hikes this year. The hikes will eventually mean higher interest rates for most people. Ultimately‚ they will push up loan rates for many. So‚ there's a risk that investors aren't getting the signals they need to make good investment decisions. Despite this warning‚ market participants were expecting a surge in inflation in the first half of 2018. That would crimp corporate profit margins and put more pressure on central bankers to unwind policies that were implemented during the Pandemic Era. Despite the Fed's hawkish shift‚ stocks recovered some of their gains in the afternoon trading session. And even if Powell's hawkish statement doesn't bolster stock prices‚ the war in Ukraine will likely keep prices on the rise. As for the timing‚ the Fed's latest meeting was held on November 3. The central bank is preparing for tapering the asset purchase program‚ which doubled the Fed's balance sheet and increased bank reserves and market liquidity. The tapering process will end around the middle of next year‚ meaning that investors should be ready to sell some of their stocks after the November 3rd meeting. The tapering plan is expected to be completed in the first half of 2019.

Stocks recover from Ukrainian fighting

Russian troops' invasion of Ukraine has thrown stock markets and oil prices into a tailspin this week. But despite the initial western sanctions‚ markets quickly recovered. Germany increased its defense budget‚ while other nations tightened their financial system‚ limiting the flow of international funds to Russia. Meanwhile‚ investors are concerned about the escalating energy costs‚ which have driven up the U.S. benchmark crude oil price by 1.7% in the past week. The European stock markets recovered from yesterday's losses‚ as a decline in oil prices eased worries about an energy price spiral. Meanwhile‚ ongoing peace talks between Russian and Ukrainian negotiators calmed the market. On Tuesday‚ the US market closed strongly higher‚ as analysts looked forward to two major economic reports. Today‚ US markets will release retail sales figures for February‚ as well as the latest interest rate decision from the Federal Reserve. A new round of talks between Russia and Ukraine could finally end the conflict between the two countries‚ although the US and European stock markets are in danger of falling. The Russian foreign minister said there was still hope for a compromise. Despite the US Federal Reserve signaling that a half point hike is imminent‚ investors were comforted by reports that the two sides would hold face-to-face talks in Istanbul on Tuesday. The Federal Reserve Chair Jerome Powell balances high U.S. inflation against the risks of a European land war. He said he believes the market is too early to gauge the impact of the fighting on the US economy. But traders still see a hike in March. Interest-rate futures point to a quarter-point hike next month. However‚ some experts argue that the Fed should take a more aggressive approach to fight inflation. The US economy is growing at a steady pace‚ providing some cushion against higher rates and more expensive gas. Meanwhile‚ consumers are spending at a healthy pace and employers are rapidly hiring. With 11.3 million vacant jobs‚ the Fed's pace of increasing interest rates may slow a little. While the economy is healthy and unemployment is at an all-time low‚ the ongoing fighting in Ukraine is likely to add to the pressure on prices.