Stocks opened tentatively lower on Wednesday but caught a bid as the morning and early afternoon wore on. By the time the Fed announced the 25 basis point rate hike the indices started to slide lower. By the close, the Dow had lost 119-points while the small caps and I fund lagged each losing over 1% on the day.
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There were no real surprises although the longer term expectations for the Fed Funds Rate moved up slightly from 2.9% to to 3.0% forecasted in September. That spooked the bond market a little, which was already oversold. Stocks on the other hand needed a break and a seasonal dip before the final week or two of the year could be a good thing.
The SPY (S&P 500 / C-fund) lost a modest 0.8% on Wednesday with all of that coming after the Fed rate hike since the S&P had inched into positive territory just before the announcement. It's still over bought and the 225 area will be the test today, but so far the rising channel remains intact as does the positive trend.
That may not be true for the DWCPF (S-fund) which fell below the sharply ascending support line. It's still above the 20-day EMA so technically there's no real issues here yet. The strong rally in the dollar should not impact the small caps as much as the larger stocks, but small caps are more sensitive to interest rate hikes.
The Nasdaq 100 held up best yesterday losing just 0.3% as the old resistance line has so far held up as support. That small gap may be too much of a draw for that support to hold in the coming days.
The EFA (I-fund) was hit the hardest with the dollar rallying 1% on the rate hike announcement.
The High Yield Corporate Bonds were hit hard as well as the double top held as resistance and the rising support gave way. This could be an inverted head and shoulders forming so the pullback may not last too long.
The AGG (bonds / F-fund) did not make the contrarian "buy the news" move that I thought was possible. Instead it remained in its downtrend. Bonds are still oversold but haven't had enough interest from buyers yet to get that oversold bounce. The Fed's more hawkish outlook kept bonds buyers away for another day.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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