A brief wobble aside, the U.S. stock market is taking Federal Reserve Chairman Jerome Powell’s decision to fully unleash the inflation-fighting side of his monetary policy persona in stride.
“The equity rally is of clear interest, and we see in the [Nasdaq-100] NDX, +1.94% that there is solid support below 14,000″ even as the U.S. 10-year Treasury yield TMUBMUSD10Y, 2.407% continues to surge well above 2% and threatens to break its multidecade downtrend, said Chris Weston, head of research at Australia-based Pepperstone, in a note to clients.
However, stocks have bounced significantly since the Fed last week kicked off the rate-hike cycle with a 25 basis point increase to the fed-funds rate and signaled substantial monetary tightening is yet to come. Stock indexes are now also trading above levels seen ahead of Russia’s Feb. 24 invasion of Ukraine.
It’s important to remember the S&P 500 index had pulled back nearly 15% through the Feb. 24 low, which means “a lot of bad news was priced in,” and which means the risk/reward outlook has improved since the beginning of 2022, said Tom Lee, founder of Fundstrat Global Advisors. in a note.
“this may be welcomed by the equity market — they’ve weighed up the outlook and feel a credible Fed is a strong Fed, and higher rates are better than entrenched inflation.” 💯