The market's celebration of a dovish Fed on Thursday came to a quick end Friday as the Fed backtracked on comments made by New York Fed President John Williams. Williams had hinted at the potential for a half-point cut at the Fed meeting later this month and the market quickly embraced the idea. The Fed then made a special announcement to clarify Williams remarks and essentially confirmed that a quarter-point hike was the most likely outcome at the meeting on July 31.
It was stunningly bad communication by the Fed, which has stressed that it is focused on being transparent. It killed the momentum that developed on Thursday and changed sentiment.
In addition to the Fed, a very good earnings report from Microsoft (MSFT) failed to produce sustained momentum. The stock gapped up sharply but trended down most of the day and finished with a gain of just $0.20. This was a solid report with a big earnings beat yet the stock barely managed a gain for the day, which does not bode well as earnings season picks up next week.
Headlines that the Iranians seized two British oil tankers didn't help matters either, although it did help to bounce oil-related stocks that have been in a strong downtrend.
The Fed's backtracking not only caused equities to change course but the dollar, precious metals and bonds as well. A quarter-point hike is well anticipated at this point and without any realistic hope of a bigger cut, it is likely that news is already discounted. We will now have to wait and see how earnings reports develop next week but after what Microsoft did on its superb report we have to be a little concerned.
Have a great weekend. I'll see you on Monday.