BRIEF COMMENT ON THIS WEEK'S FOMC MEETING AND THE BROAD STOCK MARKET (3:00 pm EDST)
We have yet another FOMC meeting coming up this week - today and tomorrow - with Fed Chairman Jerome Powell expected to give a major press conference on Wednesday at 2:00 pm (EDST) outlining his monetary policy. Wall Street investors are very jittery about this meeting as Mr. Powell is expected to raise interest rates another three-quarters of a point, and some analysts speculate it may even be a full percentage point. Fears are high that the Fed is going "full throttle" in its efforts to curb inflation - something that hasn't been done since the early 1980s. If Mr. Powell's rhetoric on Wednesday is too hawkish, it could trigger a major sell-off in equity markets. On the other hand, since the market has been falling and is falling today in anticipation of the meeting, we might see a case of "sell the rumor, buy the news" where the markets factor in the fear of a rate hike before it happens and then rally on the actual news. We shall see how this plays out on Wednesday afternoon.
Our recent analysis of the broad stock market is showing a bearish trend, so equities do look vulnerable to a sell-off right now. Will this Fed meeting be "the straw that breaks the camel's back"? It might be. On the bullish side, we are getting a case of bullish divergence today as the DOW and S&P 500 make new weekly lows without the NASDAQ. (That will be negated if the NASDAQ drops below 11,317.) We are happy to be on the sidelines of this market now and will stay there - at least until Friday when we will be better able to analyze the impact of the Fed's meeting.
We have yet another FOMC meeting coming up this week - today and tomorrow - with Fed Chairman Jerome Powell expected to give a major press conference on Wednesday at 2:00 pm (EDST) outlining his monetary policy. Wall Street investors are very jittery about this meeting as Mr. Powell is expected to raise interest rates another three-quarters of a point, and some analysts speculate it may even be a full percentage point. Fears are high that the Fed is going "full throttle" in its efforts to curb inflation - something that hasn't been done since the early 1980s. If Mr. Powell's rhetoric on Wednesday is too hawkish, it could trigger a major sell-off in equity markets. On the other hand, since the market has been falling and is falling today in anticipation of the meeting, we might see a case of "sell the rumor, buy the news" where the markets factor in the fear of a rate hike before it happens and then rally on the actual news. We shall see how this plays out on Wednesday afternoon.
Our recent analysis of the broad stock market is showing a bearish trend, so equities do look vulnerable to a sell-off right now. Will this Fed meeting be "the straw that breaks the camel's back"? It might be. On the bullish side, we are getting a case of bullish divergence today as the DOW and S&P 500 make new weekly lows without the NASDAQ. (That will be negated if the NASDAQ drops below 11,317.) We are happy to be on the sidelines of this market now and will stay there - at least until Friday when we will be better able to analyze the impact of the Fed's meeting.
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