Stocks go wild following the Fed’s rate decision and easing stance

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Commenting on today’s trading with a focus on the Fed’s rate decision, Gorilla Trades strategist Ken Berman said:

While the initial post-rate-cut dip was scary, Chairman Jerome Powell’s press conference calmed nerves, as it signaled that the Fed is ready to act should economic conditions further deteriorate. While expectations were high regarding today’s monetary meeting, and the Fed slightly disappointed, stocks once again proved their strength, and Mr. Powell’s words were cautious enough to trigger another late-session rally.

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Stocks had a wild afternoon session following the Fed’s rate decision, as expected, but the major indices finished virtually unchanged, closing the day near their intraday highs again. The Dow was up 37 or 0.1%, to 27,148, the Nasdaq lost 9, or 0.1%, to 8,177, while the S&P 500 rose by 1, or 0.03%, to 3,007. Decliners outnumbered advancing issues by an almost 2-to-1 ratio on the NYSE, where volume slightly below average.

Doves fly

The Fed’s second ‘hawkish’ rate cut in a row wreaked havoc across asset classes initially, with stocks, bonds, and currencies all producing wild moves in the wake of the Central Bank’s announcements. The Fed’s target for its benchmark rate is now 1.75%-2%, but the bank’s monetary statement remained more optimistic than expected. Analysts called for at least a strong hint on further easing measures, but Chairman Jerome Powell confirmed that future economic trends will determine the Fed’s next steps, despite the global risks, and the still ongoing tariff skirmish with China.

The President was quick to disapprove the Fed’s stance following the rate decision, labeling the Chairman Mr. Powell a ‘terrible communicator’, but the market seems to approve of the Fed’s data-dependent strategy. Besides managing investor expectations, the Fed faced another tough challenge over the past couple days, as money market rates, essentially the price of interbank liquidity, unexpectedly surged higher, prompting an intervention by the Central bank. Analysts think that the liquidity shortage is only temporary, and the fact that the Fed managed to quickly calm down credit markets also helped the rebound in equities.

Fed rate decision not biggest story amid Saudi Iran war fears

The price of oil declined substantially for the second day in a row, and the crucial commodity re-entered last week’s trading range even before the disappointing Fed announcements. While the Saudi administration presented evidence regarding Iran’s involvement in the weekend attack, the U.S. ‘only’ took steps to increase the pressure on the Persian country through sanctions, which further muted fears of a broad military conflict in the Middle East. The Fed pointed out the tame inflation pressures in its statement, but an ‘oil shock’ could change U.S. price dynamics, so the easing tensions could further boost stocks in the second half of the week. 

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