Jessica Amir
Market Strategist
Summary: Fed turns somewhat dovish; triggering a risk-on rally. Fed Chair Jerome Powell said he sees inflation coming down soon, 50% of inflation is ‘disinflationary’, so that’s positive. This suggests policymakers are more confident price pressures peaked and are rolling over and triggered the S&P500 to close at its highest level since Aug 28, after crossing its 200DMA. Facebook kicks off major tech earnings with a bang, sending its shares up 19% after hours on announcing a $40 billion boost to its share back, and guiding for stronger than expected Q1 revenue. Perhaps this is a good sign of what we can expect from Apple, Amazon and Google ahead.
The Federal Reserve made its eight rate hike. Today it increased its benchmark interest rate by a 0.25% (25bps) as expected. The market was looking for signals the Fed is at the end of its cycle. And the market received indications the end could be in sight.
The Fed statement alluded to hikes slowing, as it said inflation “has eased somewhat but remains elevated.” Later, Fed Chair Jerome Powell said he sees inflation coming down soon. 50% of inflation is ‘disinflationary’ he said. And that’s positive. So this suggests policymakers are getting more confident price pressures peaked and are rolling over.
Positive reaction to Fed: Risk on rally till data proves otherwise
The S&P500 reversed its fall, gaining 1.1% to close at its highest level since August 26. From a technical perspective, a golden cross is forming which could trigger quant trader buying. That’s something to watch, which could trigger more upside. The Nasdaq recovered from its earlier loss on Wednesday after the Fed Chair spoke, gaining almost 3% from its low of the day, before ending 2% up.Facebook shares surged 19% after hours, after announcing a $40 billion boost to its share back, as it’s guiding for stronger revenue that expected in Q1 this year, seeing revenue hit $26 to $28.5 billion, with that bulls eye target being more than expected ($27.25 billion). Q4 revenue beat expectations, falling to $32.2 billion, vs $31.7 billion expected. The business sees outgoing expenses dropping more than expected (to $89-95 billion) and lower capital expenditure. Also on the positive, FB’s daily users improved more than the market expected. From a technical perspective Meta shares closed above their 200-day simple moving average. It also appears, a golden cross is forming which could trigger quant trader buying. That’s something to watch, which could trigger more upside.
Risk on assets such as tech stocks are charging today, with the sector up 2.8% while gold equities are being bid rising 5-6%, after the gold price rallied 1%. Long term investors will be watching the tech index, given it’s down 30% from its high. Also consider the overall market, the ASX200 has a PE at 15.2 times. Cheaper than Nasdaq’s 57 times earnings. And S&P500’s earnings multiple of over 19 times.
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