The FOMC's minutes from its last March 20-21 meeting were released today and showed that the participants had been more hawkish in their approach to lowering interest rates than Wall Street had assumed (the DOW rallied strongly after that meeting with strong hopes for imminent rate cuts). The minutes released today stated:
"“Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2%,”
In other words, the decision to lower interest rates is going to strongly depend on seeing an improvement in inflation data. Unfortunately, data on hiring and inflation released over the last several days has been very disappointing and almost guarantees the Fed will not cut rates at its May or June meetings. Some analysts now give 40% odds for a cut in July, and perhaps 65% odds for a September rate cut.
The broad stock market did not react well to all of this today as the DOW "gapped" down nearly 500 points this morning and stayed down through the closing bell. Because today is the last day of our relatively weak general reversal zone (April 1 - 10), the DOW could be forming a final medium-term cycle bottom here - especially since it has been down almost three weeks from its isolated high on March 21, it is making a new weekly low today well below the 45-day moving average, and it is approaching some support around 38,000.
The NASDAQ is not making a new weekly low today, but last week's low represented a two week corrective drop, and today this index is testing and finding some support at the 45-day moving average. The S&P 500 is making a new weekly low today near its 45-day moving average, and it has also been correcting down for two weeks.
The bottom line here (pun intended) is that these indices could be making their final medium-term cycle bottoms now. The FOMC minutes combined with disappointing inflation data spooked the markets into a "crash and burn" dive today, but if Wall Street shrugs off this news tomorrow, we could see a new rally rise from the ashes. If this market takes the news more seriously, however, we could see the sell-off continue, perhaps into our next strong reversal zone coming up April 22 - March 3. For now, we remain on the sidelines and wait to see how this plays out over the next several days.