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Despite the hike in interest rate by 25 basis points back in March, inflation is still not well tamed in the US and the stock market is pricing in this reality.
The US stock market experienced a bullish resurgence at the close of trading on Thursday following the release of the Federal Reserve’s minutes for the policy meeting held in March. The outcome of the meeting was indicative of the urgency with which the Feds are willing to tame inflation and return health to the broader financial landscape and economy.
The S&P 500 (INDEXSP: .INX) grew by 0.43% to 4,500.21 while the Dow Jones Industrial Average (INDEXDJX: .DJI) recorded a growth of 0.25%, adding 87.06 points to 34,583.57. A related bullish resurgence was recorded in the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) as it inched a slight gain of 0.061% to 13,897.30.
The uptick in the US stock market was not reflected in the Russell 2000 Index (INDEXRUSSELL: RUT) which slipped 0.35% to 2,009.80. The gains printed by the major averages came as a major detour from the losing streak experienced for the better part of the week. After Thursday’s performance, the S&P 500 closed the week down by 1% while the Nasdaq Composite slipped by 2.55%.
“The S&P 500 has come under pressure over the past couple of sessions, however key support at 4455/50 is still holding for now,” wrote Credit Suisse’s David Sneddon. “Only a break below here would turn the short-term risks back lower in the range. Particularly concerning is that volume has been ticking up as the market falls.”
A number of pharmaceutical and healthcare brands led the rally seen on Thursday with a good performance recorded from consumer goods firms and tech in general. While Moderna Inc (NASDAQ: MRNA) inked a 2.83% growth to $159 per share, Pfizer Inc (NYSE: PFE) printed a 4.33% upsurge to $55.16. Costco Wholesale Corporation (NASDAQ: COST) was amongst the biggest consumer goods gainers with a 3.98% growth to $608.05.
“The moves are not surprising,” said Timothy Lesko, senior wealth advisor at Mariner Wealth Advisors. “You have a marketplace that is trying to get its head around what valuations should be in a higher interest rate environment. Every piece of economic news that comes out changes that forward expectation at the margin and the market needs to figure that out.”
US Stock Market Weighs in on Projected Monetary Tightening
Despite the hike in interest rate by 25 basis points back in March, inflation is still not well tamed in the US and the stock market is pricing in this reality. The Feds minutes show a consensus agreement to cut about $95 billion in bond purchases divided between $60 billion in Treasurys and $35 billion in mortgage-backed securities over a span of 3 months.
There is also a projection that at least one 50-basis points interest rate hike will be introduced beginning in May to help curb the surging inflation.
“The minutes from the latest FOMC meeting portray a higher level of urgency than previous communication as the Fed has circled on a commitment to run the balance sheet down faster than market participants may have expected,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.