U.S. stocks ended sharply lower on Wednesday, as comments from Fed Chair Jerome Powell shattered initial optimism over a Fed policy statement that raised interest rates by 75 basis points but signaled that smaller rate hikes may be on the horizon. The U.S. economy will likely need a "restrictive" rate for some time, Federal Reserve Chairman Jerome Powell said Wednesday in the press conference after the central bank raised its key rate by 75 basis points for a fourth straight time. "I don't get any sense that we've overtightened or moved too fast," he also said. The Fed's message is: "We think we have a ways to go, ground to cover" with interest rate increases before inflation comes down. "Pausing is not a conversation that we're having." He does note that the Fed's series of rate hikes, up 300 bps before yesterday's action, has started to impact the economy. Consumer spending has slowed significantly, he said. "While the new language introduced in the FOMC statement appeared to be setting up for a potential pause, the Press Conference was surprisingly hawkish," said Yimin Xu on behalf of SA contributor Cestrian Capital Research. "Having already raised rates by 3.75% in the current cycle, Powell feels that the Fed is still behind the curve. Chairman Powell wants to see a series of down readings in inflation and believes that the terminal rate might be higher than they previously guided. This means the Fed is open to the option of another 75bp in the December meeting, and the Fed dots for next year may even be revised up."
"Markets could have saved themselves a lot of heartache and debate over the last 13 days as the WSJ article from Nick Timiraos was ultimately fairly accurate," Deutsche Bank's Jim Reid said. "However, the problem was that the market has been paying more attention the step-down debate Mr Timiraos hinted at rather than the rest of the article saying that the terminal rate may need to go higher."
"Even after the initial statement last night, the market focused on the former (with good reason). However, by the end of the press conference it was clear that this was a hawkish dovish pivot! If that makes any sense!"
"We suspect that it will be harder and harder to justify even 50bps hikes as time goes on, but for now the market takeaway is likely to be slower policy rate hikes and a higher endpoint with the emphasis on the higher peak," Standard Chartered strategist Steve Englander said.
On the economic docket this morning, weekly initial jobless claims arrive before the bell, with October payrolls on tap for tomorrow. Economists expect claims to stay stubbornly low at 220K. The October ISM services PMI is out shortly after trading starts. The forecast is for a dip to 55.5. September factory orders, out at the same time, are expected to post a 0.3% rise.
If you have been around for the last decade, you’ve obviously heard the phrase “Don’t fight the Fed.” Well, market participants need to realize the mantra “Don’t fight the Fed” works both ways. When the Fed is supporting markets with a zero-interest rate policy and unending liquidity via quantitative easing, speculative high growth stocks soar to sky high valuations. Yet, when the Fed shifts gears and begins raising rates, those very same stocks crash back down to earth with astounding speed. As the saying goes, “stocks take the stairs up, and the elevator down.” Many get caught up in the “sunken cost” fallacy syndrome. They overstay their welcome hoping for a turnaround and end up as bag holders, unfortunately. I had to learn the hard way myself. The bottom line is when you hear the Fed start talking about raising rates and unwinding the balance sheet, it’s time to lighten up on speculative high multiple stocks. Take those proceeds and keep most as dry powder to redeploy once the coast is clear. The seeds of the coming boom are inevitably sewn during the current bust.
However, I don't suggest that the market will crush in one day, or Roma will build in one day. Most likely market will have an another rebound from here. But you need be prepared and be respect.
As old says, the market doesn't care who you are, how smart you are, what degrees you are, how much money you have, how highly you are placed socially. The market will do whatever it "wants" to do, rewarding lavishly those who surrender to it, yield to it, and follow it, and punishing severely those who argue with it, fight it, and go against it.
"Markets could have saved themselves a lot of heartache and debate over the last 13 days as the WSJ article from Nick Timiraos was ultimately fairly accurate," Deutsche Bank's Jim Reid said. "However, the problem was that the market has been paying more attention the step-down debate Mr Timiraos hinted at rather than the rest of the article saying that the terminal rate may need to go higher."
"Even after the initial statement last night, the market focused on the former (with good reason). However, by the end of the press conference it was clear that this was a hawkish dovish pivot! If that makes any sense!"
"We suspect that it will be harder and harder to justify even 50bps hikes as time goes on, but for now the market takeaway is likely to be slower policy rate hikes and a higher endpoint with the emphasis on the higher peak," Standard Chartered strategist Steve Englander said.
On the economic docket this morning, weekly initial jobless claims arrive before the bell, with October payrolls on tap for tomorrow. Economists expect claims to stay stubbornly low at 220K. The October ISM services PMI is out shortly after trading starts. The forecast is for a dip to 55.5. September factory orders, out at the same time, are expected to post a 0.3% rise.
If you have been around for the last decade, you’ve obviously heard the phrase “Don’t fight the Fed.” Well, market participants need to realize the mantra “Don’t fight the Fed” works both ways. When the Fed is supporting markets with a zero-interest rate policy and unending liquidity via quantitative easing, speculative high growth stocks soar to sky high valuations. Yet, when the Fed shifts gears and begins raising rates, those very same stocks crash back down to earth with astounding speed. As the saying goes, “stocks take the stairs up, and the elevator down.” Many get caught up in the “sunken cost” fallacy syndrome. They overstay their welcome hoping for a turnaround and end up as bag holders, unfortunately. I had to learn the hard way myself. The bottom line is when you hear the Fed start talking about raising rates and unwinding the balance sheet, it’s time to lighten up on speculative high multiple stocks. Take those proceeds and keep most as dry powder to redeploy once the coast is clear. The seeds of the coming boom are inevitably sewn during the current bust.
However, I don't suggest that the market will crush in one day, or Roma will build in one day. Most likely market will have an another rebound from here. But you need be prepared and be respect.
As old says, the market doesn't care who you are, how smart you are, what degrees you are, how much money you have, how highly you are placed socially. The market will do whatever it "wants" to do, rewarding lavishly those who surrender to it, yield to it, and follow it, and punishing severely those who argue with it, fight it, and go against it.