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“Don’t be afraid to give up the good to go for the great.” – John D. Rockefeller
After Jerome Powell hinted at the possibility of the FOMC hiking rates by 50 bps earlier this week, Cleveland Fed President Loretta Mester became the latest Fed official to throw their hat in the ring in support of a 50 bps hike when she said that she would “find it appealing to front-load some of the needed increases earlier rather than later”. Mester is only the first of a number of Fed officials scheduled to speak today with a roster that includes Powell at 8 AM, Daly at 11:45 AM, and Bullard at 3 PM (all times eastern).
Futures are lower this morning as the Nasdaq leads the declines. There’s been no major news regarding the war in Ukraine. President Biden will be traveling to a NATO summit where the US and EU are expected to issue additional sanctions against Russia, and the White House National Security Advisor warned that the war is not going to be easy or quick. Crude oil and gold are basically flat on the morning, while bitcoin is modestly lower as it continues to trade in what has been a relatively narrow range. Volatility in nickel continues, though, with the metal rallying 15% as that market attempts to find equilibrium.
On the economic calendar, mortgage applications fell more than 8% w/w, and the only other report on the calendar for today is New Home Sales at 10 AM. That report is expected to show an increase of about 1.5% to 814K versus January’s reading of 801K and would be down just under 3% versus last year’s level.
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We have really seen some monumental moves in financial markets over the last few weeks. Since we’re talking about the Federal Reserve, the latest example includes the S&P 500’s performance in the week since last week’s hike. From the close last Tuesday before the Wednesday FOMC announcement, the S&P 500 has rallied 5.85%. Going back to 1994 when the FOMC first started announcing its policy decisions on the day of the meetings, the S&P 500’s performance in the five trading days from the close on the day before last week’s announcement has been stronger than comparable time periods following any other rate hike. Heading into this hike, the S&P 500 was trading down further from its 52-week high than nearly every other rate hike since 1994, so the performance over the last week has helped the market to dig itself out of the hole.
The chart below shows the five-day performance of the S&P 500 following every prior rate hike announcement since 1994. Overall, the average five-day return of the S&P 500 following the 41 rate hike announcements has been a decline of 0.08% with positive returns less than half of the time (44%). The current period is easily the strongest on record, and the only two other periods where the S&P 500’s performance was even close were in March 2000 and before that June 1999. Granted, the S&P 500 was down sharply ahead of this hike, but any time March 2000 is the closest comparison you can find, that’s a comparison bulls don’t want to see.
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