FX Evolution: Stocks Always Do This… FOMC The Catalyst?
The Federal Reserve has finally paused its policy of interest rate hikes. However, the central bank came out with a hawkish policy statement. Specifically, the bank indicated that there may be two more rate hikes this year.
The central bank now expects interest rates to peak at 5.6 percent this year. And that there won’t be any rate cuts this year. Markets had been expecting a shift lower by the end of the year.
While the market sold off on the news on Wednesday, it quickly shifted back to close the day flat. That’s because traders viewed the potential for further rate hikes with skepticism.
However, there’s some precedent. Australia’s and Canada’s central banks have raised interest rates after pausing earlier in the year.
Overall, it looks like there may be more downside than upside in markets in the coming months. Stocks look overbought, and could pull back. The S&P 500 recently had five straight days closing over its 50-day moving average, a new record.
Given the Fed meeting and as the inflation data on Tuesday, stocks were at their most hedged for all of 2023. With those trades unwinding, markets may see bigger moves in the coming weeks, and likely to the downside.
Investors should remain cautious in the months ahead, and look for a pullback playing out in the weeks to come.
