The much-anticipated Fed interest rate decision on Wednesday wasn't particularly dovish, but the market celebrated anyway.
The Fed increased rates by a quarter percentage point, as it has been signaling for a while, and it also indicated that rate hikes would be ongoing. There are likely to be two more hikes of the same rate at the next two meetings and then a pause. Fed Chair Jerome Powell indicated that the Fed will stay very cautious about declaring victory over inflation and also still saw obstacles in the jobs market.
So why did the market react so favorably? There was a big run-up into the news, and technical conditions were ripe for a selloff if the Fed wasn't overtly dovish, but it didn't happen.
What is happening is that the price action bulls are in control of this market. They are squeezing the economic bears and are driving underinvested bulls crazy. There is a huge amount of money on the sidelines waiting for the opportunity to buy the next big market pullback, which many think will mark the bottom of the bear market.
To a large degree, the current price action is disconnected from fundamentals and the economic situation. The bears are sure that this situation will be corrected, but the market is in no rush. As the old saying goes, the market can remain irrational longer than you can remain solvent.
We have had a couple of cases in the past year where strength on Fed day was totally reduced the next day and started a downtrend. But we have some big earnings reports coming up and lots of other news flow to keep the action chaotic.
This was not a market-friendly Fed today, but the market just isn't concerned about it currently. The action is primarily driven by positioning and price action and not by fundamentals or economics.
Have a good evening. I'll see you tomorrow.
