TSP Talk Blog

Stocks sold off after the Fed announced possible interest rate hikes in the future. The Dow lost 266-points, and with the dollar soaring on the news, prices were down almost across the board. Small caps and the Nasdaq held up fairly well comparatively, and over all it wasn't too bad, just volatile for a while there as expected on an FOMC meeting day.

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The talking about, talking about, tapering meeting. That's what Fed Chair Powell said yesterday as they discussed two potential rate hikes in ... 2023. That's right, in two years they will consider rate hikes and the market got a little upset. But that's par for the course for an FOMC meeting as traders trade, investors buy dips, and money managers make adjustments based on the latest information.

I don't see how that was all too surprising that they would considering raising interest rates in two years. You would hope that the economy was working well enough to take the interest rates off their 0% level within a couple of years, so before we look at this as terrible news, let's see how the dust settles.

Now, that doesn't mean the market doesn't need a rest as they are just off their all-time highs, so this may just be an excuse for some profit taking, and I'm actually hoping we do see a healthy pullback to create some solid basing and support for a sustained move higher later in the year. The S&P 500 is abut 400 points above its 200-day EMA and 130 points above the 50-day EMA, and the later we know tends to get tested at least a few times each year.

Yields rallied on rate hike possibility -- in two years, but remains below some resistance.




And the dollar exploded which helped send prices down basically across the board for stocks, commodities, and bonds.




The decline in stocks was quite modest and we may need a day or two to see if there is any lasting effect to the mini taper tantrum. The index futures continued lower after the bell yesterday so there could be some heaviness to start Thursday.

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The S&P 500 (C-fund) was down moderately yesterday and the only concern here is that it fell back below the May high so we could start hearing the "failed breakout" talk, which could pile on the selling if it doesn't bounce right back. The 20-day EMA held again as we have seen often in the prior weeks with only a couple of exceptions in May.




The DWCPF (S-fund) fell sharply after the Fed meeting, and it was actually down earlier to start the day, but the dip buyers jumped in and the 20-day EMA and rising support line did what they do... supported.




The EFA (I-fund) took a hit and with the dollar jumping 0.82%, I'm surprised it was down further. I wouldn't be surprised if the small open gap near 80 gets filled this week.




The Dow Transportation Index lost another 1% on the day and that moved it below the 50-day EMA. That's the 3rd close in 5 days be the 50-day but we still haven't seen two consecutive closes below it.




The High Yield Corporate Bonds (credit market) backed off but closed off the lows. With it trading below that old broken resistance line, the bears may have the opportunity to push it down to 87.10 near the prior highs which could give investors another reason to sell. Speculation, of course.




BND (bonds / F-fund) dropped as we finally heard some inflation and interest rate talk from the Fed. This decline seemed a long time coming. As you know, I have been confused why bonds have done so well (and yields were dropping). Maybe that is going to change? Nah, I think the bond market would rather keep me confused. :^)




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Tom Crowley



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