COMMENT ON THE FED MEETING and BROAD STOCK MARKET UPDATE (11:00 pm EST)
Well, the Fed came through with its expected quarter point cut in interest rates at the end of today's FOMC meeting; however, the Fed's announcement was accompanied by an updated "dot-plot" graph that revealed only two expected rate cuts in 2025. The last dot-plot update in September indicated four proposed cuts, so this reduction in expected cuts for next year was a bit of a shock to many investors. Jerome Powell's 2:30 press conference did not assuage investor's concerns over the hawkish dot-plot as Mr. Powell pointed out that inflation was moving sideways and this justified a more cautious approach to rate cutting in 2025.
Equity markets lost no time in responding to this hawkish news with a hefty sell-off immediately following the release of the Fed statement at 2:00 pm. The DOW was down 1,123 points by the closing bell. Although many (including myself) were surprised by this sharp sell-off, it was not totally unexpected as our cycle analysis of this market indicated late stage medium-term cycles in all three market indices (DOW, S&P 500, and NASDAQ) that were due to bottom soon. As I've mentioned in previous blogs, when a medium-term cycle makes its final corrective drop, we like to see it test or even break below its 15-day and/or 45-day moving averages. Today's plunge brings the DOW well below those averages. The S&P 500 also closed below its 15-day and 45-day moving averages, and the NASDAQ closed below its 15-day, but still above its 45-day moving average.
The DOW and S&P 500 have been falling for nearly two weeks, but today is only day 3 for the NASDAQ's fall from its all-time high of 20,204 on Monday. A final corrective drop in a medium-term cycle should last from 2 - 5 weeks, so the NASDAQ has to fall some more to satisfy that requirement. If today's panic sell-off continues into next week, that shouldn't be a problem, and should that happen, the NASDAQ could take the DOW and S&P down along with it. We are staying on the sidelines of the broad stock market as we see how this plays out.
Well, the Fed came through with its expected quarter point cut in interest rates at the end of today's FOMC meeting; however, the Fed's announcement was accompanied by an updated "dot-plot" graph that revealed only two expected rate cuts in 2025. The last dot-plot update in September indicated four proposed cuts, so this reduction in expected cuts for next year was a bit of a shock to many investors. Jerome Powell's 2:30 press conference did not assuage investor's concerns over the hawkish dot-plot as Mr. Powell pointed out that inflation was moving sideways and this justified a more cautious approach to rate cutting in 2025.
Equity markets lost no time in responding to this hawkish news with a hefty sell-off immediately following the release of the Fed statement at 2:00 pm. The DOW was down 1,123 points by the closing bell. Although many (including myself) were surprised by this sharp sell-off, it was not totally unexpected as our cycle analysis of this market indicated late stage medium-term cycles in all three market indices (DOW, S&P 500, and NASDAQ) that were due to bottom soon. As I've mentioned in previous blogs, when a medium-term cycle makes its final corrective drop, we like to see it test or even break below its 15-day and/or 45-day moving averages. Today's plunge brings the DOW well below those averages. The S&P 500 also closed below its 15-day and 45-day moving averages, and the NASDAQ closed below its 15-day, but still above its 45-day moving average.
The DOW and S&P 500 have been falling for nearly two weeks, but today is only day 3 for the NASDAQ's fall from its all-time high of 20,204 on Monday. A final corrective drop in a medium-term cycle should last from 2 - 5 weeks, so the NASDAQ has to fall some more to satisfy that requirement. If today's panic sell-off continues into next week, that shouldn't be a problem, and should that happen, the NASDAQ could take the DOW and S&P down along with it. We are staying on the sidelines of the broad stock market as we see how this plays out.
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