As expected, the Federal Reserve announced its first interest rate hike this year on Wednesday following a two day meeting of the FOMC. The Fed's so called "dot plot" also showed that the central bank has penciled in three more rate hikes for 2017, an increase from only two shown in its prior forecast. This slightly hawkish change was tempered, however, by Janet Yellen's cautious rhetoric regarding Donald Trump's policies and how they might effect the country's economy, saying that she "wouldn't want to speculate" on these policies at this time as they are still unclear.
Apparently, Ms. Yellen is not as enthusiastic about Trump as Wall Street has been over the last five weeks since the election. But this strong rally in the broad stock market may be slowing down now and could be pausing to take a break and perhaps a corrective dip before resuming and rising higher into 2017. We are now out of a reversal zone for this market that ended on Wednesday, but we will enter another (stronger) one next week (starting on Tuesday). The highs in this week's market indices were made on Wednesday (DOW), and Tuesday (S&P 500 and NASDAQ) so they are within the last reversal zone. In Monday's blog l wrote:
"... if the Fed's statement mentions any plans for future hikes that look too hawkish (i.e. bigger hikes sooner than expected), equities could take a dive. Ideally, we would like to see a top by Wednesday and then a modest correction into the end of this month; however, this market is looking very bullish and could push higher over the next two weeks before correcting. Right now we will look to buy any correction that gets to the 19,000 area in the DOW and the 2,170 area in the S&P 500. We could get to those levels by the end of this week, but if these markets push higher past Wednesday, we may have to wait a bit longer for a corrective bottom to buy."
Well, the Fed did add an extra rate hike for next year (three instead of two), but I don't think that slightly hawkish decision is enough to put a major dent in this "Trumphoria" rally, especially as we are now in the middle of the holiday season which often favors a bullish market. If the highs from earlier in the week hold, we could see some sort of correction into next week's reversal zone (which actually lasts from Dec. 20 through January 3). If that happens and the DOW gets closer to 19,000 and the S&P closer to 2,170, we will look to buy. On the other hand, if this rally pushes higher into next week, it may set up a short-term shorting opportunity from a top. In that case we would likely have to wait several more weeks for a bottom to buy. Still on the sidelines of the broad stock market.
Not surprisingly, gold and silver prices plunged this week in response to the interest rate hike (which boosted the U.S. dollar) so it looks like both metals are completing older cycles and will go lower. I will comment more on this and other markets this week-end.