[BRIEFING.COM] Stocks soared Thursday as investors rallied around the idea that the Fed may finally take a breather after two years of interest rate increases.
As expected, the Fed raised rates another 1/4% to 5.25%, representing the seventeenth consecutive rate hike since its first bump in June 2004. While higher rates obviously aren't good news for stocks and the language of the policy statement was essentially the same, the Fed reiterating that "inflation expectations remained contained" and saying that "the moderation in the growth of aggregate demand should help to limit inflation pressures over time" helped assuage concerns related to the hawkish Fed commentary that had acted as an overhang since the May 10 meeting.
Before the opening bell even sounded, the market tone was already decidedly bullish, suggesting that today's widely expected 1/4% rate hike had been priced into a market which was on pace for its worst quarterly performance since September 2002. As of Wednesday's close, the Dow, SnP 500 and Nasdaq were down 1.2%, 3.8% and 9.7%, respectively in Q2. By the end of trading Thursday, the Dow finished the quarter up slightly while an impressive 3.0% surge on the Nasdaq wiped out most of its 4.2% year-to-date decline.
Further underscoring renewed bullishness was an 18% drubbing on the VIX (CBOE Volatility Index), dropping it to its lowest level since mid-May when the market began its correction. Known as the "investor fear gauge," the spike lower suggested investors were actively buying call options in anticipation that a short-term bottom had been put in place that will keep investors on the buying track.
Money managers making some last-minute adjustments to their portfolios as Q2 comes to a close tomorrow also helped divert some attention away from what the Fed would or would not say in its policy directive and helped the market to begin thinking about the upcoming earnings season. To wit, the Materials and Energy sectors, which are again expected to contribute the largest percentage to aggregate earnings growth on the SnP 500, turned in the best performances. Both sectors got an additional boost, of course, as the greenback plunging by the most in two months after the Fed implied a potential pause made dollar-denominated commodities like gold and oil more attractive.
Providing even more influential leadership, however, was the rate-sensitive Financials sector, which turned in an impressive 2.2% advance as strength in Treasuries, buoyed by tame word alterations to the Fed directive that gave bond traders hope that the end is near, sent rates lower across the yield curve. The yield on the 10-yr note (+10/32) fell to 5.20%. Among all of the economic sectors posting a gain of at least 1.0%, Technology was another influential area attracting bargain hunters. Renewed enthusiasm for beaten down bellwethers (e.g. MSFT +1.3%, CSCO +3.2%, INTC +3.4% DELL +3.4%, TXN +3.6%) gave the sector a noticeable boost. NYSE Adv/Dec 2758/508...Nasdaq Ad
DOW Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
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