BROAD STOCK MARKET UPDATE (1:45 am EST)
The U.S. Federal Reserve and Janet Yellen seemed to take special care yesterday to phrase the language of September's Fed policy statement in terms that would not upset financial markets. Yellen kept her dovish reputation intact stating that the labor market still has room to improve and reiterated earlier Fed statements that interest rates are likely to remain low for a "considerable time" after the bond-buying program ends in October. Although Ms.Yellen gave the impression that there was no rush to hike rates, the Fed presented data projecting the midpoint of the Fed funds rate to be 1.375% by the end of 2015 and 2.875% by the end of 2016. These rates are higher than the Fed's earlier forecast in June ( 1.125% by the end of 2015 and 2.5% by the end of 2016) which suggests that the Fed is getting a bit more hawkish and could start the rate hike earlier than expected. (Many analysts have been expecting the hike to start in the second half of 2015.) What we want to note here is that a hawkish Fed can make stock markets nervous right now, but a dovish Fed usually calms them down.
The DOW was typically jittery when the Fed statement was released at 2:00 pm and it quickly plunged 50 points. Janet Yellen's subsequent press conference likely calmed markets as the DOW rebounded and hit a new all-time high of 17,221 shortly after 3:00. The market's enthusiasm, however, was short-lived as the DOW then dropped 60 points to close the day with only a 25 point gain. Tomorrow and Friday's price movements will likely tell us more about the impact of the Fed's statement (if any) on the broad stock market. Although the DOW made another new high today, the S&P 500 and NASDAQ are still below their early Sept. highs, so we still have potential intermarket bearish divergence in these indices. Today's price action (surging up and then falling) is also bearish so there is still the possibility of these markets turning down.
The U.S. Federal Reserve and Janet Yellen seemed to take special care yesterday to phrase the language of September's Fed policy statement in terms that would not upset financial markets. Yellen kept her dovish reputation intact stating that the labor market still has room to improve and reiterated earlier Fed statements that interest rates are likely to remain low for a "considerable time" after the bond-buying program ends in October. Although Ms.Yellen gave the impression that there was no rush to hike rates, the Fed presented data projecting the midpoint of the Fed funds rate to be 1.375% by the end of 2015 and 2.875% by the end of 2016. These rates are higher than the Fed's earlier forecast in June ( 1.125% by the end of 2015 and 2.5% by the end of 2016) which suggests that the Fed is getting a bit more hawkish and could start the rate hike earlier than expected. (Many analysts have been expecting the hike to start in the second half of 2015.) What we want to note here is that a hawkish Fed can make stock markets nervous right now, but a dovish Fed usually calms them down.
The DOW was typically jittery when the Fed statement was released at 2:00 pm and it quickly plunged 50 points. Janet Yellen's subsequent press conference likely calmed markets as the DOW rebounded and hit a new all-time high of 17,221 shortly after 3:00. The market's enthusiasm, however, was short-lived as the DOW then dropped 60 points to close the day with only a 25 point gain. Tomorrow and Friday's price movements will likely tell us more about the impact of the Fed's statement (if any) on the broad stock market. Although the DOW made another new high today, the S&P 500 and NASDAQ are still below their early Sept. highs, so we still have potential intermarket bearish divergence in these indices. Today's price action (surging up and then falling) is also bearish so there is still the possibility of these markets turning down.
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