Rate pause again: Will market stop decline?
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No change
with Fed's rate.
What opportunities lie ahead
FED kept their rate unchanged on their 1st November meeting, twice in a roll. S&P 500 and Nasdaq closed with gaining over 1%, while bond yields went down by more than 10 basis points for 2 and 10 years', and 8 basis points for 30 years'.
Key interest rates information and data
Release date
2023-11-1
Current IR
5.25%-5.50%
% Change
0
Next time
2023-12-13
Next forecast
—
Latest inflation
3.7%
Fed’s interest rate trend chart
*Source：FX678.com
Timeline & impact of FOMC interest rate decisions
2023-11-1
% Change：0
Post-change IR：5.25%-5.50%
The Federal Reserve has chosen to maintain current interest rates, signaling a continuing preference for monetary tightening. Not mentioning an additional rate hike, beyond the one projected in September, is seen as a dovish stance.
*Source：https://wallstreetcn.com/articles/3701056
2023-9-20
% Change：0
Post-change IR：5.25%-5.50%
The Federal Reserve, in line with market expectations, kept key interest rates unchanged and raised its economic forecasts. However, it also warned that the battle against inflation is far from over, leading to a sharp drop in the U.S. stock market.
*Source: https://www.fx678.com/C/20230921/202309210446261053.html
2023-7-26
% Change：25
Post-change IR：5.25%-5.50%
Interest rates have reached their highest level since 2001, in line with previous market expectations. Federal Reserve Chairman Powell stated that inflation has eased somewhat but there is still a long way to go before returning to the 2% target.
*Source: https://www.rfi.fr/cn/中国/20230726
2023-6-14
% Change：0
Post-change IR：5.00%-5.25%
The Federal Reserve's decision to pause rate hikes, as expected, marks a temporary halt to the 10 consecutive rate increases that have been in effect since March 2022.
*Source: https://www.fx678.com/C/20230615/202306150243241858.html6
2023-5-4
% Change：25
Post-change IR：5.00%-5.25%
The Federal Reserve's language in this decision appears relatively neutral. The U.S. dollar index experienced a short-term drop of more than 30 points, then partially recovered its losses.
*Source: https://www.fx678.com/C/20230504/202305040232271855.html
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How does an interest rate hike affect the U.S. stock market?
An increase in U.S. bond yields can be dissected into two main factors: real interest rates & inflation expectations. Therefore, a rate hike policy typically leads to an increase in U.S. bond yields. These bond yields serve as a global benchmark for assessing asset values, exerting a substantial influence on stock market valuations. Valuation models like the Dividend Discount Model (DDM) and Discounted Cash Flow (DCF) suggest an inverse relationship between stock valuations and risk-free yields. As these yields climb, the global stock markets are often susceptible to a decline in valuations.
Hence, one of the most significant effects of a rate hike policy is the effect on the stock market. As U.S. bond yields increase, bond prices fall, making bond investments more appealing. This can lead some investors to shift their funds out of the stock market and into the bond market, exerting downward pressure on the stock market.
Powell: Fed officials cautious, considering whether more rate hikes are necessary, not contemplating rate cuts.
Therefore, the Federal Reserve's primary communication strategy, underscored by the "Higher or Longer" narrative, holds paramount significance. Analysts have been anticipating that the July decision might represent the culmination of the rate hike cycle.
The following is a synopsis of the trading opportunities that may arise in the wake of this pivotal rate decision meeting：
Interpretation: Wall Street continues to believe in "buying the dip" as $21 billion in funds "bought the dip" in long-term U.S. bonds. The price of the 20+ Year U.S. Treasury Bond ETF (TLT) is nearing a 16-year low, having fallen by more than half from its peak in 2020, but investors are still flocking to it.
Interpretation: BIL primarily invests in short-term government bonds, which are considered one of the lowest-risk assets. In a high-interest-rate environment, it offers relatively lower risk to investors.
Interpretation: Despite the potential pressure on stock valuations in a high-interest-rate environment, the S&P 500 Index ETF is designed for long-term growth. This means that investors can hold onto their positions during market fluctuations and pursue long-term capital appreciation.
Interpretation: The Nasdaq-100® Index (NDX) includes over 100 of the largest local and international non-financial securities listed on the Nasdaq stock market. Since its inception in 1985, NDX has become one of the world's most prominent large-cap stock growth indices. Over the past two decades, the Nasdaq-100 Index has shown significantly strong performance compared to the S&P 500.
Interpretation: The Dow Jones Industrial Average is one of the oldest and most revered market indices in global history and serves as a renowned benchmark for the U.S. stock market. The index encompasses various industries, including manufacturing, finance, technology, healthcare, and more. Even in a high-interest-rate environment, the Dow Jones Industrial Average has shown remarkable performance over the past several decades.
Interpretation: It is one of the world's largest product tanker operators, boasting over a century of shipping experience. With a dividend yield of 23.3% and strong analyst recommendations, it appears to be an attractive investment option.
Interpretation: The Federal Reserve's monetary policy and interest rate decisions have a significant impact on the entire stock market, particularly on high-growth technology stocks. Amazon, being a tech giant, is often influenced by Federal Reserve policies, especially in the context of inflation and interest rates.
Interpretation: Google views AI as one of its core areas and maintains an industry-leading position in research and applications in this field. It also holds strong market positions in several high-growth areas. Investors should closely monitor the potential impact of Federal Reserve policies and macroeconomic factors on the AI industry and tech stocks to assess investment decisions.
Interpretation: Microsoft, as a diversified tech giant, is often influenced by Federal Reserve monetary policy and interest rate changes. Lowering interest rates may stimulate investor interest in high-growth tech stocks, while raising rates can impact the cost of debt, affecting the company's capital expenditures and borrowing.
Interpretation: It is one of the largest gold mining companies in the world, and its earnings are closely related to the price of gold and gold mine production. Gold is typically seen as an asset to hedge against inflation. Analysts at Haitong Securities believe that as the Federal Reserve approaches the end of rate hikes, precious metals are likely to trend upward in the backdrop of a gradual slowdown in U.S. monetary tightening policies.
Interpretation: It is Brazil's state-owned oil and gas company, and one of the largest energy companies in Brazil, with a dividend yield of 26.23%. Since the outbreak of fighting between Israel and Hamas, global oil prices have surged, potentially causing volatility in the stock price of this company.
Interpretation: Newmont Mining is one of the largest gold production companies in the world, engaging in gold and copper mining activities globally and being a significant player in the gold mining sector. Federal Reserve policy and interest rate decisions can trigger volatility in global financial markets, which might affect the price of gold, subsequently impacting the company's profitability.