Today the Fed raised interest rates another 0.75% points as expected. Chairman Jerome Powell emphasized the need for this large hike, and possibly another in September, to combat inflation. He also hinted, however, that rate hikes were dependent on economic data and that a large September hike wasn't a certainty, noting that the central bank would eventually slow the magnitude of rate hikes. It seems that this was enough "dovish" rhetoric to make Wall Street happy, as the broad stock market really took off after Mr. Powell's comments. (The markets also "gapped up" at this morning's opening bell, but then remained relatively flat until the Fed's statements were released in the afternoon.)
But will Wall Street's optimism hold up as today's meeting fades into the background and investors continue to confront the unrelenting stresses of more inflation, the Russia/Ukraine war, and now a new surge of COVID cases along with the threat of monkey-pox? Mr. Powell's "crumbs" of dovish rhetoric may not be enough to pacify jittery investors for long. We shall see as the week wears on whether or not this market wants to turn bullish, at least for a relatively short-term rally into September. To be bullish, the DOW now needs to clear 33,272, the S&P 500 should break above 4.177, and the NASDAQ needs to rise above 12,293 (it is close). We will remain on the sidelines of the broad stock market for now.
The Fed's "slightly dovish" comments seem to have depressed the U.S. Dollar Index and boosted gold and silver prices (at least for today). This was good news for our long position in gold and reinforces the idea that we are starting a new medium-term cycle that should rally some more. We continue to hold our gold long position and remain on the sidelines of silver for now.
Crude oil prices also rallied today, but we still would like to see them fall lower for a potential medium-term cycle bottom near or below $88.23 (Sept. contract chart). There's still time for that to happen as our current reversal zone for crude (July 25 - Aug. 2) is in effect through next Tuesday. Let's see if today's rally can gain any legs. If prices start closing above $102, we may have to accept the low of Jul 14 ($88.23) as the start of a new medium-term cycle.
We remain on the sidelines of crude for now.