D&D Note (6.15.2022) ~ FED Pulls a Triple Hike and Markets Rally ~
The FED raised interest rates today by 75 basis points, a triple hike of three quarters of a percent. This is the largest rate hike since 1994. With todays hike that puts the current FED fund rate around 1.6%.
The new Dot Plot is forecasting a FED fund rate of 3.4% by the end of 2022. Chairman J. Powell said that a 50bp or 75bp hike is likely at the next meeting in July. He also said that 75bp moves are not expected to be common going forward.
The 2 Year Note plunged 23 basis points as J. Powell spoke in the press conference. The move down in bonds allowed stocks to then rally today.
The “junkier” stocks rallied the most (high beta tech stocks not creating profits) which is not a sign of a strong sustainable rally. D&D would not be surprised to see markets do a “rethink” tomorrow as was the case after the last FED meeting in May when stocks rallied day of meeting then sold off the day after.
Retail Sales have unexpected decline of -0.3% compared to the estimate of a 0.1% increase. While sales in gas surged the decline everywhere else brought the overall reading down.
Homebuilder sentiment drops to lowest level in 2 years and has now fallen for six straight months. Mortgage demand is now less than half of what it was just a year ago.
President Joe Biden calls on Oil companies to pump more to help ease the burden of high gas prices pointing out their above normal profit margins.
Biden is also sending another $1billion in military aid to Ukraine which includes anti-ship systems, artillery rockets and rounds for howitzers.
Bitcoin is trying to find a bottom with the average buyer now underwater. The token held the $20,000 level today which is key as below that large margin calls will get triggered.
Stock Specific News:
Robinhood fell -2.49% after being downgraded to neutral by Atlantic Equities citing declining users and regulatory issues.
Moderna jumps 5.3% after the FDA voted to recommend their Covid vaccine to children ages 6-17.
Spotify announced they will be slow hiring by 25%.
Ford says that inflation has wiped out profits for its new EV Mach-E Mustang however demand for new vehicles is still strong.
Market Knowledge Tip:
One Basis Point is equal to 0.01 in the bond market.
What is considered “one rate hike” by the FED is a quarter point move or 25 basis points. Last month the FED delivered a double hike with 50bp and today we got a triple hike with 75bp. This was the largest rate hike since former FED Chair Alan Greenspan did a 75bp hike in 1994.
Closing Markets (as of 1:15pm PST)
DOW up 1.00%
S&P 500 up 1.46% (3,789.99)
NASDAQ up 2.50%
VIX down -9.39% to 29.62
2 Year Note down -21.81bp to 3.21%
10 Year Note down -18.28bp to 3.29%
Oil down -2.556% to $115.94 a barrel.
Gold up 1.307% to $1837.20 an ounce.
Bitcoin down -1.82% to $21,571.67
Ethereum down -2.23% to $1,161.97
~ Dave James / Principal Trader and Market Strategist