- SPY rallies hard after Fed front loads interest rates.
- Nasdaq (QQQ) is also on a charge as doveish Fed tilt welcomed.
- SPY finally closes gap, now $415 targeted.
The Fed did its best to placate markets on Wednesday when it hiked interest rates by 75 basis points. Odd to be writing that a 75-basis-point hike was met by a powerful rally in risk assets, but that is exactly what happened as the Nasdaq (QQQ) powered ahead by over 4%, while the S&P 500 (SPY) closed nearly 3% higher on Wednesday. For comparison, the last 75-basis-point hike was met with the opposite. It was all doom and gloom as the WSJ leaked the 75 bps figure, and equity markets collapsed. Why was this time different?
SPY ETF news
“This time is different” is a noted insult to growth investors by their value brethren, but this time it was different. The Fed abandoning its forward guidance was basically the reason. It said it will adopt a wait-and-see approach. The market took this to mean it may slow the pace of rate hikes or at least will refocus on economic growth to the detriment of inflation. Investors have grown increasingly concerned that the Fed will hike too aggressively and engineer a severe recession. Now that worry has lessened rightly or wrongly.
Today may give some clarity to that argument with the first release of US GDP. Last quarter was already a decline, so by most definitions a second quarterly decline means the US is in recession. Bond market yields immediately went lower following the FOMC meeting, and that sent long-duration stocks soaring higher. Long duration covers most high growth and technology names. After the close, we got a poor set of earnings from Meta Platforms, but the overall tone of positivity could not be dented by the social media leader, which again saw advertising revenue fall, leading to its first revenue decline since its IPO.
Now that the gap has been filled, it opens the door to a test of resistance at $415. We have been banging on how underweight the fund manager cohort is in terms of equities, and the same can be said for hedge funds. With Apple and Amazon up after the close for earnings, today is a big one for this rally. If they are anyway average or in line, we feel fund managers will have to chase this rally and so cause it to continue. Meta Platforms’ earnings miss is not being punished thus far. It is also worth noting as well that the SPY has moved above its 50-day moving average. A recent feature of these markets has been choppy trading with strong rallies often followed by strong declines. Wednesday was indeed a strong rally with 86% of all listed stocks finishing higher. We expect more choppiness, but the overall direction remains bullish for now.
SPY chart, daily
The author is long IUSA (S&P 500 ETF).