The question of: “Why are stocks up today?” is always an interesting one to try to answer. After all, on any given day, there are an incredible number of factors and variables to take into consideration.
Market movements have become complicated by increasing geopolitical tensions, commodity (oil) prices that remain high, dollar strength, and other factors one might point to as bearish.
However, it’s also true that this past week’s Federal Reserve Open Market Committee (FOMC) meeting was much more dovish than expected. Thus, stocks across the three major indices are seeing broad moves higher today, with the Nasdaq up more than 1% in early afternoon trading.
Let’s dive into what sort of signals investors are taking from this recent meeting and why stocks continue to make strong moves to the upside right now.
Why Are Stocks Up Today?
Higher interest rates are starting to be felt in many key sectors of the economy, according to the Federal Reserve. This has allowed for a recent pause to the Fed’s hiking cycle to allow for some retrospection on how exactly these hikes are filtering through the economy and whether more work will need to be done (i.e., if rates will need to rise) to continue to bring inflation down toward the Fed’s 2% goal.
Now, the Federal Reserve has left the door open to the potential for more rate hikes. And stubbornly high inflation in other parts of the world (see Australia) has led some central banks to continue hiking rates. Thus, it’s impossible to state with any sort of certainty that the Fed is done here.
However, betting markets do indicate that the likelihood of another rate hike or two coming down the road has been reduced significantly following this meeting. That is to say, unless we get some sort of surprise economic reading that suggests inflation is much more stubborn than thought, we’re moving in the right direction toward (at least) an extended pause.
Today’s price action in markets suggests investors may be looking even further down the road to rate cuts. Personally, I think rate cuts will only take place if some serious recessionary forces take hold (which will obviously not be good for the market). Thus, I’m hesitant to view today’s rally as one that’s likely to be sustainable.
But it’s a rally, and we’ll certainly take it today.
On the date of publication, Chris MacDonald did not have (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.
