NYSE MAC Desk
Fed Recap:
STRAIGHT FROM THE TRADING FLOOR
by Michael Reinking, Sr. Market Strategist
November 1, 2023 5:00 PM ET
DOW 33,275 (+222), S&P 500 4,238 (+44), Russell 2000 1,669 (+7), NYSE FANG+ 7,423 (+158), ICE Brent Crude $85.02/barrel (+$0.00), Gold $1,987/oz (-$7), Bitcoin ~35.0k (+130)
As expected, the Federal Reserve left the Fed Funds target rate unchanged for the second consecutive meeting at 5.25% - 5.5%. There were minimal changes made in the statement outside of slight upgrades to the description of the economy and job gains. The only other change was the addition of “financial” to the following sentence, “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.” This was an acknowledgement of the recent rise in in rates. Today’s decision was unanimous. There was nothing controversial or surprising here so there was a minimal impact seen in financial markets.
Not surprisingly the Chairman’s message was very consistent with what we’ve heard recently and was pretty balanced. He noted the progress made on inflation but that it remains above target. He continued to acknowledge resilience in the labor market while pointing out that the overall situation was moving back into balance. On multiple occasions he noted the tightening of financial conditions but didn’t want to codify how many rate increases it was equivalent to. He once again noted that the full effects of the tightening of financial conditions and monetary policy have yet to be fully felt. To point out how balanced his approach was, he said that the Federal Reserve was not confident that rates were sufficiently restrictive and weren’t confident that they weren’t either. The Chairman did not take further rate hikes off the table, but he seemed very comfortable with where the current policy stance is, suggested that risks were more balanced at this point and once again said the Committee would move “carefully”. This puts the onus on economic data to force their hand. Like the statement there were really no big surprises during the press conference. This was probably the least controversial or eventful meeting in the last two years.
Yields were lower ahead of the meeting following this morning’s Treasury refunding statement and weak ISM manufacturing report and extended to the downside during the press conference. Treasury yields were down >10bps across the curve breaking to the lowest levels seen in the last couple of weeks. Equities pulled back from the earlier highs at the start of the press conference but rallied throughout the rest of the session with the S&P 500 closing higher by just over 1%, closing right at its 200d moving average. There were really no major changes to sector leadership in the back half of the session with mega-cap tech heavy sectors leading to the upside.
Looking ahead to tomorrow economic data includes claims and Challenger Job Cuts ahead of Friday’s Employment report. The Bank of England has their rate decision also has their rate decision ahead of the open and is expected to remain on hold. The bombardment of earnings will continue in the next twenty-four hours capped of by Apple earnings after tomorrow’s close. Below I've also included the calendar of major economic data through the end of the year.
Sectors/Other Asset Classes:
The S&P 500 rallied right into the range we laid out in the Mid-Day. If we can break above the 200d the declining 20d currently around ~4,265 is the next test but the real important level is ~4,400 to break the downtrend.
Upside:
We’ve been highlighting the negative divergence in the 10yr for a couple weeks now and price offered some confirmation of that today with a close below the 4.8% level we have been highlighting. This opens the door for a first stop move down to 4.6%, which would be supportive of equity markets.
- Fed leaves Fed Fund Target Rate unchanged
- No major surprises
- Treasuries and equities extend their rallies
As expected, the Federal Reserve left the Fed Funds target rate unchanged for the second consecutive meeting at 5.25% - 5.5%. There were minimal changes made in the statement outside of slight upgrades to the description of the economy and job gains. The only other change was the addition of “financial” to the following sentence, “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.” This was an acknowledgement of the recent rise in in rates. Today’s decision was unanimous. There was nothing controversial or surprising here so there was a minimal impact seen in financial markets.
Not surprisingly the Chairman’s message was very consistent with what we’ve heard recently and was pretty balanced. He noted the progress made on inflation but that it remains above target. He continued to acknowledge resilience in the labor market while pointing out that the overall situation was moving back into balance. On multiple occasions he noted the tightening of financial conditions but didn’t want to codify how many rate increases it was equivalent to. He once again noted that the full effects of the tightening of financial conditions and monetary policy have yet to be fully felt. To point out how balanced his approach was, he said that the Federal Reserve was not confident that rates were sufficiently restrictive and weren’t confident that they weren’t either. The Chairman did not take further rate hikes off the table, but he seemed very comfortable with where the current policy stance is, suggested that risks were more balanced at this point and once again said the Committee would move “carefully”. This puts the onus on economic data to force their hand. Like the statement there were really no big surprises during the press conference. This was probably the least controversial or eventful meeting in the last two years.
Yields were lower ahead of the meeting following this morning’s Treasury refunding statement and weak ISM manufacturing report and extended to the downside during the press conference. Treasury yields were down >10bps across the curve breaking to the lowest levels seen in the last couple of weeks. Equities pulled back from the earlier highs at the start of the press conference but rallied throughout the rest of the session with the S&P 500 closing higher by just over 1%, closing right at its 200d moving average. There were really no major changes to sector leadership in the back half of the session with mega-cap tech heavy sectors leading to the upside.
Looking ahead to tomorrow economic data includes claims and Challenger Job Cuts ahead of Friday’s Employment report. The Bank of England has their rate decision also has their rate decision ahead of the open and is expected to remain on hold. The bombardment of earnings will continue in the next twenty-four hours capped of by Apple earnings after tomorrow’s close. Below I've also included the calendar of major economic data through the end of the year.
Sectors/Other Asset Classes:
The S&P 500 rallied right into the range we laid out in the Mid-Day. If we can break above the 200d the declining 20d currently around ~4,265 is the next test but the real important level is ~4,400 to break the downtrend.
Upside:
- ~4,225 - ~4,275 there are a couple technical indicators that fall into this zone which include the level we broke down from/last week’s high/200d (~4,240) and declining 20d (~4,265).
- Taking the picture out a little bit and would take a big surprise to get there today would be the 50d (~4,350) and then a key level ~4,400 which would break a series of lower highs.
- ~4,175 where we’ve spent some time over the last few days and the area the market broke out from in late May.
- ~4,100 last week’s low
- ~4,050 May lows before spring rally and the measured move on H&S pattern we’ve discussed.
We’ve been highlighting the negative divergence in the 10yr for a couple weeks now and price offered some confirmation of that today with a close below the 4.8% level we have been highlighting. This opens the door for a first stop move down to 4.6%, which would be supportive of equity markets.
- US 2yr -12bps to 4.96%, 5yr -18bps to 4.68%, 10yr -17bps to 4.76%, 30yr -17bps to 4.92%
- USD index: +$0.02 to $106.52
- VIX: -1.27 to 16.87
- Bitcoin: +0.8% to ~35.2k
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