The Fed held the as expected. Fed Chairman Kevin Warsh gave very few useful comments; only that the 2% remains the target for inflation and that price stability will be reached. No comments on energy prices, nothing on the labor market other than that the economy remains strong. The bond market’s reaction seems to be saying that the Fed appears dovish, and today’s bounce-back rally appears to be saying the same thing.
Tech was overdue for a bounce. The fell 1.5% at the close yesterday, dropping to 7,316 after initially rising to 7,450 when the announcement of no change in Fed funds was made. Today, the S&P is up 1.2%. The did the same whipsaw, closing down 1.7% and today is up 2.5%. Semiconductors were down 4.8% yesterday, up 6.8% today. The hasn’t recovered as well, down 2.2% yesterday, up 0.5% today. The was down 1.6%, up 0.5% today. The even-weighted S&P has acted worse, down 0.9% yesterday, and down another 1.1% today.
Today’s rally includes precious metals higher, also more of a recovery from recent losses. Crypto is also trading up, with now flat for a week, +10% for the trailing month (though still down 42% LTM).
All this volatility is taking place while crude oil remains elevated, at $84.15/bbl, up 20% in the trailing month, although down 3.3% in the last week. The fighting in the Middle East goes on, and seems to be widening with attacks on Saudi Arabia and the Suez Canal.
There’s clearly some doubt about the Fed’s willingness to raise rates to address inflation, reflected in higher long yields.
Earnings remain strong, but interest rates and inflation are likely to bring more short-term volatility, which should be a buying opportunity.