Fed disappoints market, Nasdaq takes the brunt

September 17, 2020 11:30

The Federal Open Market Committee (FOMC, its acronym in English) of the Federal Reserve agreed yesterday to maintain interest rates as before, in a range between 0% and 0.25%. What's new about this decision is that Fed Chairman Jerome Powell has pledged to keep interest rates low until inflation is close to "moderately exceeding" the 2% target, something that experts say might not occur until at least 2023.

Otherwise, the Fed did not offer new stimulus to the economy and limited itself to maintaining the purchase of Treasury bonds and securities backed by residential and commercial mortgages "at least at the current rate" guaranteeing lax financial conditions.

What disturbed the market most is that Powell expressed doubts about the economic recovery by pointing out that, although it has progressed faster than expected, "the way forward remains very uncertain."

The results were that the US markets closed lower:

  • The Nasdaq took the worst hit, closing with a fall of 1.25%
  • Apple fell -2.95%
  • Facebook dropped -3.27%
  • The S&P500 fell 0.46%

Only the Dow Jones managed to rise, slightly (0.13%).

Source: Admiral Markets MetaTrader 5. M30 Nasdaq Chart. Data range: from September 14, 2020, to September 16, 2020. Prepared on September 17, 2020, at 7:20 am. Keep in mind that past returns do not guarantee future returns.

As we see in the 30-minute chart, the Nasdaq fell after news of the Fed's decision came out and the losses were accentuated after Powell's appearance. However, and despite the latest falls, the Nasdaq has appreciated more than 28% so far in 2020. In the last five years, the technology index only closed 2018 in the negative (-1.04%).

US 10-year Treasuries rose slightly yesterday to 0.685%, while the US dollar gained against most other currencies. The euro fell 0.4% to $1.1767 and the Chinese yuan 0.35% to 6.7686 yuan per dollar.

Yesterday was the last scheduled Fed meeting before the presidential elections on November 3.

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