Market Rallies on FOMC
Yesterday we had the FOMC and the Fed press conference, which the market reacted favorably to.
Here are the key things that I took away that I think are important to know.
Fed Slowing Selling of Balance Sheet
The biggest news from the FOMC statement in my opinion is below:
Essentially what this tells us is that the Fed will still be reducing its balance sheet, but at a rate far slower than in the past.
This is the equivalent of a rate cut in my opinion.
Here is a look at the Fed balance sheet compared to the performance of the S&P 500. You can see that the COVID bounce we saw was spurred by the Fed increasing their balance sheet.
As it became clear that the Fed would begin reducing its balance sheet, the S&P sold off until this selling was digested by the market.
Now that this selling will begin to flatline, we should see the market able to push more easily. This is very bullish in my opinion.
Fed Uncertainty is Decreasing
The major takeaway from the Fed dot plot is that we are starting to build consensus.
This is last quarterβs dot plot:
Now here is the new dot plot we just received:
Notie how much tighter the new dot plot is than the old one. This is a great sign because it tells us that the Fed is building consensus on what the future looks like.
When we have as much uncertainty as we did in last quarterβs dot plot, it leads to wariness among investors because there isnβt a clear picture of what the economy will look like in the future.
Now that we have more of a consensus, a lot of that uncertainty fades away, emboldening investors to get involved in the market.
There is a lot more to digest from FOMC. I run through everything you need to know in this video: