On Wednesday at 2 p.m., the Fed increased interest rates by 25 basis points. All 12 members of the FOMC voted for the increase. At first, the S&P 500 (IVV) and Nasdaq (QQQ) barely reacted. But during the question-and-answer session, the indices slumped.
In the last hour of trading, the major markets, except for the Dow Jones (DOW), which fell by 1.2%, recovered. The market action suggests that stock markets will rebound from here.
Fed Chair Kevin Warsh said that the policy action will support a timelier return to the Fed’s goal of achieving 2% inflation. The hint for another 25 bps at the next meeting in November is potentially a positive development for stocks. It is less than the 50 bps that the Treasury bond markets are pricing in.
Expect the 20+ Year Treasury Bond ETF (TLT) and 7-10 Year (IEF) to attract buyers. In the tech sector, investors sent Lumentum (LITE) up by 9.59% and Coherent (COHR) up by 6.92%. Intel (INTC) led the chip market’s advantage by adding 4%, while Nvidia (NVDA) rose by 0.81%.
Energy stocks sold off. ConocoPhillips (COP), Occidental Petroleum (OXY), and Diamondback Energy (FANG) declined. Expectations that oil prices would continue to fall will weaken inflation pressures. That lowers the odds that the Fed raises rates again by more than 25 bps.
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