Stocks took quite a ride on this Fed Day, moving sharply lower after the announcement but rebounding before the closing bell. The end result was a rather modest decline for a market that can go a little crazy when topics like inflation, interest rates and the Fed take center stage.
As expected, the Committee made no immediate changes to policy. Interest rates remain near zero and the $120 billion worth of monthly bond purchases will continue. However, their inflation outlook for 2021 was raised by a full percentage point to 3.4% and they said rates could be hiked in 2023 rather than 2024.
But the inflation forecast for next year was only slightly raised and the Fed continues to say that rising inflation is only transitory, though some investors probably feel vindicated for their skepticism.
“The Fed shook some things up today, but when you look at the chart for the last week, we have no real impact on the market,” said Jeremy Mullin in Counterstrike.
“Historically Fed moves can be 1-2% in a day, but we barely moved outside of the initial flush lower. The next few trading days will be important for us to follow price action.”
The NASDAQ outperformed on Wednesday by slipping only 0.24% (or 33 points) to 14,039.68. The index reached a new record on Monday, but has slipped in the subsequent two sessions along with the rest of the market.
The S&P dipped 0.54% to 4223.70, while the Dow now has a three-day losing streak with a decline of 0.77% (or about 265 points) to 34,033.67.
Volume was higher on Wednesday due to the Fed focus... but what about tomorrow? Reaction to these Fed statements are not always limited to one session. Will we return to the summer laziness on Thursday or will today’s announcement have some aftershocks?
Let’s see what happens.
Today's Portfolio Highlights:
Home Run Investor: The housing market is “super hot” in the southern states, so that’s where Brian went for today’s addition of Dream Finders Homes (DFH). This homebuilder operates in states like FL, TX, NC, SC, GA, VA, MD and CO. Rising earnings estimates have made it a Zacks Rank #2 (Buy). But the editor is most impressed with “a great valuation for a stock that is showing some great growth”. More specifically, the company posted 82% topline growth in its most recent quarter, but the valuation is only at 15x forward earnings. Looking forward, analysts expect 70% topline growth this year and 20% next year. Shares of DFH have pulled back a bit, giving Brian a great opportunity to add the name amid steady rates and rising margins. Read the full write-up for more on today’s moves.
Insider Trader: "There was no change to the Fed's position (i.e. no surprise) BUT they did change their schedule as to when they think they will need to raise rates. It seems it will be here sooner, rather than later.
"Powell also said in the press conference that they will telegraph far in advance before they start to raise. He called this the meeting about the meeting where they will announce they will taper.
"Why did everyone think this was the most important Fed meeting in 50 years? Some of those during the Great Recession seemed much more important than this one. Heck, even the Volker meetings were more important than this one.
"Stocks finished down on the news but there was no panic." -- Tracey Ryniec, who had a top performer on Wednesday as Maxar Technologies (NYSE:MAXR) jumped more than 11% after getting a 'buy' rating from a major firm.
Options Trader: “Although, with the majority of Fed officials now believing we could see at least two rate hikes by the end of 2023, it seems like the ‘foreseeable future’ just got a bit shorter in comparison to previous sentiments that the Fed would leave rates unchanged thru 2023.
“But that still implies no change in rates for the rest of this year, no change in rates next year, and likely no change in rates for much of 2023. That’s a highly accommodative stance and is bullish for both the economy and the market.
“So my takeaway from today remains largely the same as it was yesterday: 1) The economy is booming. 2) Inflation is rising, but is transitory. 3) Rates will stay near zero for quite some time.
“And that’s all bullish news.” – Kevin Matras
All the Best,
Jim Giaquinto
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