Stocks Extend Gains on Indications of Slower Fed Hikes

Stocks edged higher on Thursday, as the dollar took a breather amid indications of slowing monetary tightening policy of the Federal Reserve.

Even though an Asian share gauge rallied by 1% on Thursday, gains were smaller than Wednesday’s 2.6% rally in the S&P 500 and a 4.3% surge in the Nasdaq100. Unfortunately, the dip in futures indicates that the US rally could hit a brick wall when Wall Street reopens. 

Yesterday, the Fed hiked interest rates by 75 basis points for a second month running, adding that such a move is possible again as it continues to explore different options to curb rising inflation. Fed Chairman Jerome Powell added that the pace of hikes would be slowed, and policy would be unveiled after every meeting. Fed’s new position on interest rate hikes is coming amid signs of an economic slowdown.

While stocks edged higher, treasuries also witnessed a little changed. The 10-year yield rose by 2.79%. Also, swaps tied to the date of Fed policy meetings show a 3.3% peak, which is slightly different from the current range of 2.25% to 2.5%

Elsewhere, the yen edged higher by 1% against the dollar following Fed’s decision to increase the interest rate by 75 basis points. Oil also advanced, rising above $98 per barrel for the first time in many weeks. Meanwhile, Gold and Bitcoin have edged up following Fed’s new interest rate hike. Bitcoin jumped from $21,000 to $23,012, its best performance compared to the past few days.

Analysts and their skepticism

While investors have a lot to be excited about, analysts believe the knee-jerk relief in the market on Fed’s outlook on future rate hikes shows a pattern that always plays out after every hike. 

Though markets have rallied following the news, recession risks owing to Fed’s monetary tightening, Europe’s energy crisis, and the challenges in the Chinese property market mean that the market could still edge lower in the next couple of days. 

Investors now await feedback from President Joe Biden’s calls with China’s Xi Jinping for fresh impetus. 

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