Traders twiddled their thumbs while they waited for the Fed interest announcement at 2 p.m. ET. The dull action helped to produce a gloomy mood but that worked to the benefit of the bulls into the close.
Fed Chair Jerome Powell and his gang of economists cut interest rates a quarter-point as was widely anticipated, but they were not very clear about the potential for more cuts. This caused some initial selling. However, during the press conference that followed the news, Powell made it clear that the Fed was ready to cut rates if the economy weakened. Currently, the central bank is not forecasting a recession so it makes sense to hold back some ammunition in case that forecast changes.
The bears have been wishing, hoping and praying that the market would finally embrace the argument that Fed interest rate cuts have lost their potency. Wednesday was not the day for that revelation, though. As the Powell press conference took place, stocks rallied straight up and finished the day at the highs. Powell told the bulls what they wanted to hear, which was that the Fed still has a number of tools that it can use in case of economic weakness.
The indices ended the day close to flat, which makes for the fourth major news event in the last 10 days that has barely moved the indices. The collapse of high-beta momentum stocks, the bursting of the bond bubble, a spike in oil, and a Fed rate cut have barely moved the market.
The best explanation for this surprisingly mild response to big events is that too many market players are already too negative. When big news hits there aren't that many sellers left and the conditions for the buyers to drive stocks higher are favorable. It is a source of great consternation for the pessimists who are convinced that the bulls must be blithering idiots given fundamental and macro-economic conditions.
The action once again proves that the best way to navigate the market is to focus on price action rather than big-picture arguments.
Have a good evening. I'll see you Thursday.