To no one's great surprise, the Federal Reserve decided not to raise interest rates this month. In a press conference after the FOMC released its statement at 2 PM in the afternoon, Fed Chairwoman Janet Yellen mentioned "Brexit" concerns as part of the reason for a hike delay. The recent dismal jobs report from the U.S. Department of Labor most likely also weighed heavily on the minds of the FOMC during this week's meeting. The Fed's statement as well as Yellen's comments seemed only tentatively committed to two more rate hikes this year and left room for speculation that there may only be one. Yellen suggested that interest rates may continue to be depressed by ”factors that are not going to be rapidly disappearing, but will be part of the new normal."
Equity markets started to rally in the morning but fell steeply after the release of the Fed's policy statement and Ms. Yellen's press conference. It seems that Yellen's and the Fed's dovish tone was not enough to calm the fears of a nervous stock market anxiously awaiting the Brexit vote next Thursday. The DOW and S&P 500 both closed the day with small losses. Of course, we need to wait and see if the broad stock market will continue to fall. On Tuesday the S&P 500 fell close to 2,060 which is near the upper range for a correction if this market is going to stay bullish. We could still see equity markets bounce here, but we won't get too concerned unless we see these indices making new weekly highs, especially if that happens after next Monday. Our preferred scenario is to have the correction continue down into the end of the month. Holding my short position in the broad stock market for now.
The Fed's dovish tone was not appreciated by the U.S. Dollar Index which fell steeply shortly after 2 PM. This gave a boost to an already bullish precious metals market and gold prices soared to the $1,300 mark (silver got to $17.77). Technically, today was the last day of the reversal zone for gold and silver so if prices don't reverse here and gold starts closing above $1,303, we could see gold "breakout" and continue a rally into the end of the month. Let's wait and see if the "Fed effect" on this market will last longer than a day or two. If it doesn't, we could see a reversal and a downward correction in prices. Still on the sidelines of gold and silver.
Crude oil prices continue to fall and seem to be on track to make a medium-term cycle bottom sometime in late June or early July. Our target is still the $40 - $45 range or lower. As with the broad stock market, we could see a bounce in prices this week, but I don't expect any rally to last long or get very far before turning down again. Holding my short position in crude oil.