Good Thursday AM,
Yesterday the Fed did decide (as markets expected) on a 10th consecutive rate increase of .25, continuing the fastest such cycle in 40 years, brings its benchmark federal-funds rate to a range between 5% and 5.25%, a 16-year high. Until now, officials have been looking for clear signs of a slowdown to justify ending rate increases. But Fed Chair Jerome Powell indicated that calculation could shift now, and officials would need to see signs of stronger-than-expected growth, hiring and inflation to continue raising rates.
Stocks retreated after the decision, while U.S. government bonds rallied.
The benchmark 10-year U.S. Treasury yield fell to 3.401%, from 3.438% Tuesday. The S&P 500 fell 0.7%, the Dow industrials 0.8% and the Nasdaq Composite 0.5%. The third sentence in yesterday’s FOMC statement — was “The U.S. banking system is sound and resilient.” Well, within a few hours of that comment, about six regional banks got hammered. PacWest Bancorp for one was down nearly 40% in premarket trading Thursday and the selling has continued. PacWest shares were already down roughly 80% since February levels before yesterday so you can imagine what this looks like now. They are not alone. Then fourth sentence of the Fed’s press release was “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.” He got that one right.
Unemployment claims came in a bit higher than expected today and the big news is tomorrow’s jobs report.
If it follows yesterday’s strong ADP report, bonds will be on sale quickly. Markets are looking for 181k new jobs I would think anything above 200k is bad for rates. With yesterday and today’s improvement (the 10-yr is now down to 3.35% and should trade to 3.25% before hitting a line in the sand), I do think tomorrow’s report will be muted but I do not know it is worth the risk. Next week we do get CPI on Wednesday and that will be another big day for the markets (I anticipate good things from that report).
Please remain safe and stay healthy, make today great!