Trading in the US equities remains hectic, unpredictable and full of surprises. The escalating tensions in the Ukrainian border, Biden threatening Putin with personal sanctions, IMF cutting the US and Chinese growth outlooks, combined to the hawkish Federal Reserve (Fed) expectations are mostly responsible with the rising volatility and confusion among investors.
Yesterday, major US indices went from tears to laughter then back to tears, again. The S&P500 was trading almost 3% down when the dip buyers piled in to send the index into the positive territory. But gains remained short-lived, and the index closed the session 1.22% lower. Nasdaq swung up and down, as well, to end the session 2.28% down, but the Dow was almost flat, having lost just 0.19% to the close.
As such, seeking a dip has become a difficult exercise, and the strong corporate results have little impact on the market’s bad faith these days.
Time to chill for the Fed hawks
It’s probably soon time to chill for the Fed hawks, as the Fed hasn’t got anything to gain in sending out hawkish messages today: slaughtered equity markets won’t help them to get the inflation situation straight. On the contrary, a deep dive in the financial markets would only refrain the Fed from doing what it’s got to do and worsen inflation.
The hawkish fears include that the Fed could announce the end of the QE taper as soon as today, that it could hint at back-to-back rate hikes instead of one rate hike every quarter, that it could surprise with a 50bp point hike in March instead of a more likely 25bp raise, or it could even choose not to wait until March and hike the rates this week.
Yet, these hawkish expectations are certainly a bit far stretched; the Fed can’t trigger a financial crisis to fix the inflation problem. There is a greater chance we meet a confident, yet comforting Fed at today’s announcement. If the Fed wants to carry on with its hawkish plans, it needs to get the risk appetite under control.
