Friday's Market Minute: Unconfident Markets Need Guidance From The Fed

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

Fed policy is now very clearly the most prominent driver of market sentiment, and the prospect of a series of interest rate rises this year has been a drag on equities. Markets are now pricing in between four and five 25-basis-point rate increases this year, with the first coming in March. Near-term bearishness has fallen to such an extreme that it supports a significant countertrend rally, which makes this market rather dangerous for those playing the short side as well. 

Equity markets became fragile in November last year as unanticipated inflation led the Fed to accelerate the pace of paring down monthly purchases of bonds and mortgage-backed securities. The FOMC was not explicit this week in what they intend to do with the balance sheet, which has roughly doubled in size since the pandemic began nearly two years ago. Also, there was no mention from Powell of how gradual rate increases will be, which caused Wednesday’s post-statement rally attempt to be short-lived. The conditional “buy the dip” crowd has flipped to “sell the rally” as market volatility appears not to be going away anytime soon. Unless the Fed provides some additional clarity on balance sheet maintenance, or inflation and economic growth demonstrate a modicum of cooling, the market may continue to be biased towards anxious sellers rather than eager buyers.

Image sourced from Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.