Fed Cuts Rates As Expected, Focus Shifts To Friday's Employment Report  Stocks pulled back yesterday after the Fed finally cut rates as expected.
There was no surprise with the Fed's 25 basis point cut.
And hearing that they ended their quantitative tightening two months ahead of schedule added to the bullishness.
Same for their released policy statement which indicates they are open to more rate cuts in the coming months.
Even Fed Chair, Jerome Powell, at his press conference, characterized the move as a "mid-cycle adjustment", and didn't rule out more cuts.
But he spooked the market when he said it was "not the beginning of a long series of rate cuts."
My take is that the pullback was 1) illogical, 2) overdone, and 3) temporary.
1) Why illogical? Because this was probably the most telegraphed cut in the history of cuts. And the market got exactly what it expected. They also added further stimulus by ending their QT ahead of schedule. True, Mr. Powell did caution that this was not the beginning of a long series of rate cuts. But he put that statement into context by saying that is usually only done during times of severe economic distress. But traders also seemingly decided to ignore his dovish statement suggesting the Fed was open to more rate cuts in the coming months. Those two statements are not mutually exclusive since 1-2 more rate cuts this year (as the market is expecting), is also, by definition, not a long series.
2) Why overdone? See above. But also, one has to remember the old trading adage of 'buy the rumor, sell the fact.' Everybody 'knew' we were going to get a rate cut (we did). And everybody thought that would be bullish for the market (yesterday notwithstanding, it is). But too many people were probably too long the market going into this. And anything short of a dovish surprise could prompt a pullback and some profit taking (which we got). But the rate cut, in and of itself, is bullish. So is the early end to QT. And so is the open door to more cuts.
3) Why temporary? Again, see above. But if everything the Fed did yesterday was bullish for equities (is anybody going to argue it wasn't?), then there's no reason for stocks to go down. Sure, the market acts irrationally all the time. But only for relatively short periods. That being the case, once the weaker hands have been run out of the market, I expect stocks to rebound and begin a whole new leg up.
I was glad to see the Fed undo last December's disastrous rate increase with yesterday's rate cut. This is being called an insurance policy against a slowdown.
Although, I would still like to see another 1 or 2 cuts by year's end for good measure.
But all in all, yesterday's actions by the Fed were bullish. And so were the words that followed.
The Fed remains committed to ensuring the expansion continues. And that's good news for the economy and stocks.
So I'd look at this pullback as a buying opportunity. Especially tech stocks. They have been on a tear this year. And I expect that to continue.
If you're looking for a few new stocks to add to your portfolio, be sure to read our latest commentary...
The Best Tech Stocks for Your Portfolio
Best, 
Kevin Matras Executive Vice President, Zacks Investment Research |
没有评论:
发表评论