The Fed gave the market its expected three-quarters of a percentage point rate hike, but that didn't offer anything very positive. Fed Chair Jerome Powell reiterated that the Fed would remain data-dependent and make decisions on a meeting-by-meeting basis, but all the financial projections moved in the wrong direction. We will likely see another hike of the same level at the next Fed meeting in November, unless poor economic news hits before then.
Powell used the word "pain" repeatedly in his comments and made it clear that the housing market, the labor market, and the overall economy were likely to hurt as the Fed tries to bring inflation under control. He made it clear that avoiding pain would not be possible.
Nothing positive came from the Fed's decision, but a sizable bounce lasted a few minutes, because traders have to trade. It had nothing to with the news, but traders are always looking for post-Fed volatility and that helps to make big moves self-fulfilling.
The bounce did not last very long, and the lows of the day were undercut as we moved into the close, and we finished at the lowest point since July. A small gap on the S&P 500 fund's (SPY) chart, which was created on July 15, was filled.
Now what?
The charts look absolutely miserable, and a retest of the lows that were hit in June looks more and more likely. New 12-month lows were over 1000 names again, and there just is not a lot of great support out there.
The positive spin on this action is that the market is pricing in quite a bit of "pain." There is no way to know when it will be fully discounted, but some very attractive opportunities are developing. We just have to stay patient and wait for lower-risk entry points to develop.
Have a good evening. I'll see you tomorrow.
