Fed Makes Expected 0.5% Hike Amid Strong Labor Market; Stocks Rally

The Federal Reserve made a widely-expected 50 basis point hike today at its Federal Open Market Commitee meeting. Such a hike was long-seen as a dramatic one, but markets have responded well to the hike today. 💚

The S&P 500 closed just south of +3% on the day, while the Nasdaq-100 led the major market indexes, +3.4%.

This is relatively… weird behavior. Higher interest rates generally have a negative impact on equities and earnings outside of the financial sector, which we anticipated during the earnings season. While somebody could say that markets have already taken on a lot of downside, it’s hard to dismiss that investors were excited about today’s hike. 🤔

There could be a few factors carrying weight with investors here. The first is the Fed’s newfound “hawkish” stance on inflation. Raising rates and downsizing the assets on the Fed’s balance sheet will likely have an impact on inflation. Raising interest rates will slow the economy, and theoretically let some of that excess financial energy float away.

However, the second factor that has consumed the headlines is worries among investors about recession. Since raising rates will likely slow the economy, investors were feeling the time to exit the market was coming. Some things have watered down concerns among the investing community:

1) A “buy the dip mentality”: A UBS Group poll found that nearly a third of high net worth (HNW) individuals would rather add to investments than sell them. 💰

2) The latest on the labor market: Earlier this week, the U.S. Labor Department showed that there were more than 11.5 million job openings in March, which is a WILD amount of openings. Since July 2021, these openings have exceeded 10 million each month. 💡 Meanwhile, the amount of unemployed people has dropped pretty substantially. The unemployment rate is almost where it was before the pandemic. Additionally, average hourly earnings have remained up and to the right.

3) Earnings, y’all: Earnings data is still coming in strong. According to Refinitiv, of the 275 companies which had reported as of Apr. 29, 80.4% of them beat analyst estimates. That was lower than the four quarter average (probably because the pandemic was realllllllllly good for many of these names, for some reason), but much higher than the long-term average of 66%. Q1 2022 earnings are expected to be up 10.1% YoY.

Too early to say, but these are potential reasons explaining why investors are weirdly excited about rake hikes after the past couple of months. By the end of the year, the Fed target rate is expected to land just south of 3%.

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Fed Meeting Recap: Rate Hikes in March 📈 🇺🇸

The highly-anticipated (and *dreaded*) Fed meeting concluded today. The theme of this month’s meeting was “it’s time we end pandemic-era monetary policy” as JPow confirmed that the Fed is ready to raise interest rates at its March 15-16 meeting, marking the first time the U.S. has raised rates since 2018. 🇺🇸 

Stocks sold off the news. 🤷 The tech-heavy Nasdaq was the only index to close green, +0.02%. 💚 The Dow, S&P 500, and Russell 2000 all closed red, with the Russell losing the most, -1.38%. Here’s a general summary of the major points addressed at this month’s Fed meeting (and none of these was a major surprise):

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