Boy, it has been another volatile day in the stock markets. With selling pressure taking hold this morning, many investors may be surprised to see most major indices absolutely popping this afternoon. Accordingly, a pertinent question might be: Why are stocks up today?
As always, this is a difficult question to answer. There are multiple forces at play in the market at any given time. However, today is certainly a special day. That’s because it’s Federal Open Market Committee (FOMC) decision day.
There are eight FOMC meetings each year, each providing the committee with the opportunity to change its interest rate policy. Given the heightened inflationary environment we’re in, this meeting was widely expected to feature a 50 basis point (bps) hike to the Federal Funds rate.
Essentially, the Federal Reserve delivered as expected — we now have a Federal Funds rate that’s 0.5% higher. Additionally, the Federal Reserve indicated it will begin trimming its balance sheet. However, the market is actually taking this news well.
Let’s dive into why that’s the case right now.
Why Are Stocks Up Today?
Heading into this meeting, the market appears to have acted as it does best. When a specific outcome is uncertain, most investors take a cautious view.
The market didn’t know exactly how to price in the FOMC meeting. Investors knew the Federal Reserve would be hawkish. However, the extent of that hawkishness was unknown.
Now, investors have clarity. And with the Federal Reserve delivering as expected, a lack of surprise is generally being viewed as a good thing. Additionally, Fed Chair Jerome Powell has also brushed off the idea of a 75 bps hike for now, saying this is something the committee will not consider near-term.
While accelerated rate hikes may still be on the table — at least for the next couple meetings — the market now has room to breathe. Accordingly, investors appear to like the continuity of the Fed’s story and the lack of surprises today.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
