2023-03-23 09:45:48 ET
Summary
- The Fed raised rates by 25 basis points to reach what looks like the peak at a range of 4.75-5.00%.
- Investors bought that rumor and sold the news yesterday.
- I don't think depositors are in need of blanket insurance above $250,000.
- Investors can now shift focus back to the economy and inflation, which both still suggest a soft landing is on track.
There were no surprises yesterday. The Fed raised short-term rates by 25 basis points, and Chairman Powell played the rhetoric game to a certain extent during his press conference by indicating there probably wouldn't be any rate cuts later this year. Still, that was a dovish pivot from two weeks ago when the consensus was expecting multiple rate increases to a peak of 6%. The most notable change in the Fed's official policy statement was that it removed a line stating that "ongoing increases" in the benchmark rate would be appropriate. That suggests we have probably reached the peak in rates. Stocks rose to their highs of the day on this news, but reversed course sharply and closed at their lows.
You can thank Janet Yellen for the reversal, as the Treasury Secretary responded to a question about deposit insurance during her simultaneous Senate hearing by saying there was no consideration in the works to provide blanket insurance above the $250,000 maximum limit. That sent bank stocks reeling, and the rest of the market followed. I think that knee-jerk reaction will reverse in the days ahead. I viewed her comments in a positive light, as blanket insurance would indicate that recent bank failures were not isolated incidents. It would have instigated fears of systemic risk.
I think yesterday's selloff was simply giving back some of the prior two day's gains, as the market ran up in advance of what it was expecting from the Federal Reserve. Investors bought the rumor and sold the news. The S&P 500 still closed just above the support of its 200-day moving average at 3,934, which is another higher bottom.
The same can be said for the Nasdaq Composite. Even the S&P Regional Banking index ( KRE ) closed at a level that keeps intact the pattern of higher bottoms and tops in a process that is shaking out the remaining weak shareholders. Nothing has occurred to refute or reverse the bullish technical backdrop that I reviewed in yesterday's report.
For further details see:
The Peak In The Fed Funds Rate Is Here