After its two day policy meeting that ended at 2 PM this afternoon, the FOMC announced that it would leave interest rates unchanged for August. This was not unexpected in the wake of the recent "Brexit" vote which threatens Europe's economic stability, but curiously there was no mention of global events in today's Fed statement even though Fed officials had recently expressed concern over geopolitical issues adversely affecting the U.S. economy.
Today's statement expressed optimism over recent economic data, and this is fueling speculation that at least one more interest rate hike is coming before the end of the year. We will have to wait and see if that happens. I still believe that the Fed will try to avoid any rate hikes before the U.S. presidential election in November.
The broad stock market rallied a bit in early morning trading but then lost those gains by 2 PM. After the Fed statement was released, the markets attempted another rally but then closed the day basically flat. The Fed's statement had no surprises and was neither hawkish nor too dovish so a tepid reaction from equity markets seemed appropriate. We will have to wait a few more days to see what direction this market takes from here. We are entering a reversal zone for equities tomorrow which will continue through most of next week. If this market continues down into this time, we could easily see a bottom soon and then another rally to new highs. If instead markets rise into next week, we could see that rally followed by another correction down. In either scenario I don't expect any correction to be that serious. Holding my long position in the broad stock market.
The U.S. Dollar Index reacted rather strongly to yet another delayed interest rate hike. It fell dramatically immediately following the release of the Fed's statement. The next several days should tell us if this will be just a knee-jerk reaction to the Fed or the start of a more serious correction for the dollar.
The steep drop in the dollar kicked gold and silver prices in the opposite direction. Gold prices surged back up to $1,340 and silver prices broke just above $20. All of the short-term bearish arguments I made for the precious metals in my last blog still apply, however, and we are now entering a reversal zone for gold and silver (tomorrow through all of next week). This rally, therefore, may not get very far before turning down again. We may want to look for a top to sell short in both metals if conditions look right as we move into next week. Cycle analysis still points to a final medium-term cycle bottom in silver over the next three weeks down to the the $18 level. (There was a brief intraday plunge on silver's spot price chart to $17.60 on July 17, but this is probably not a valid data point for the cycle structure. If the cycle has already bottomed, however, it will soon be obvious and we will switch to a bullish buying strategy.) Remaining on the sidelines of both gold and silver for now.
Crude oil prices also fell dramatically today and are now approaching the $42 level. We are still watching for an ideal buy spot in crude as we move into next week's reversal zone. On the sidelines of crude and looking to buy soon.