Stocks opened lower this morning following a Fed rally yesterday. The Dow and SPX are currently down 89 pts & .6%, respectively. All ten market sectors are lower, led by energy (-1.5%). The dollar didn’t move much yesterday after the Fed announcement, but it is clearly strengthening this morning (+.6% vs. the Euro). Not surprisingly, gold and other commodities are getting hammered. WTI crude oil id down another 1.7% to $34.86/barrel. Bonds prices are up a bit today. The 2-year Treasury yield spiked to 1.0% yesterday (5 ½ year high) but is down to .99% at the moment. The 5-year Treasury is trading at 1.72%.
Yesterday, The Federal Reserve’s Open Market Committee did exactly what was expected of it. For the first time in nearly a decade, the Fed raised its key short term policy interest rate. The Fed-funds rate range is now .25% to .50%. In addition, the accompanying statement was interpreted as “dovish” by Wall Street. The Fed will continue to tighten monetary policy very slowly, at an uneven pace that is data dependent. That means perhaps only four rate hikes next year. This was a sort of Goldilocks move; Janet Yellen said rates were raised because the economy is clearly strong enough to support it, but not strong enough to warrant further tightening in the near term. As Jim Cramer said yesterday, “The Big Bad Event” is over. After the announcement, the prime interest rate, used by banks to set consumer loan rates, moved up .25% to 3.5%. This should modestly boost bank earnings going forward. CNBC contributor Art Cashin noted the Fed also apparently raised the interest rate it pays banks to keep their reserves, to .5%. As we know, the US banking system is now over-capitalized, and he implied this rate hike gives further incentive for banks not to boost lending.
MikesMarketUpdate 