The Markets React to Federal Reserve’s Policy Meeting
Yesterday evening, the Federal Reserve announced the outcome of their two-day policy meeting, and, for the present, not much has changed.
As had been widely expected, the Fed signalled that interest rate rises were likely to arrive in March and reaffirmed that their bond purchasing programme would end that same month, a decision which had been made at their previous policy meeting in December.
However, again, as expected, it was Fed Chair Powell’s post-announcement press conference which investors paid particular attention to, for any hints as to the Fed’s next moves.
Without committing the Fed to any particular course of action, Powell stressed that inflation is well-above the Fed’s long-term target and emphasised that the global supply chain issues we are currently witnessing may be more persistent than originally thought.
His comments had an immediate ripple effect throughout the markets, as investors, who were hanging on every word, deduced that the Fed will prioritise tackling rising inflation over strong economic growth in the coming months.
The dollar index, which tracks the performance of the US dollar against a basket of six rival currencies, closed the session at its highest level in over a month and has continued to rise strongly this morning.
Brent crude, which rose above $90 a barrel for the first time since October 2014 intraday, dropped back below this level, as oil, which is priced in US dollars, becomes more expensive for foreign currencies when the dollar rises.
Gold, long a favourite with investors hedging against inflation and which tends to have an inverse relationship to the US dollar, fell 1.5%, erasing all the gains made in 2022 and continued to fall this morning.
In the stock market, the reaction was largely predictable. On Monday, Wall Street spent the majority of the day in the red, only to have most of its losses reversed in the closing hours as investors bought the dips. Yesterday, we saw the opposite scenario. US stocks, many of which had been enjoying a very positive session up until Powell’s press conference, retreated from their intraday highs in the final hours of the day.
The results at the end of the session were fairly mixed. The S&P 500, which had been up more than 2% during the session, closed with a decrease of 0.15%. The tech-heavy Nasdaq 100, on the other hand, closed with a gain of 0.17% but had been up more than 3.5% intraday.
Microsoft closed the day with a 2.85% gain following its better than expected revenue forecast for the current quarter, though the tech giant had been up almost 7% intraday.
Netflix, whose weak forecasted subscriber growth figures last Friday have seen the stock plummet in recent days, fell by a further 1.83% during yesterday's session.
However, the streaming giant’s share price has risen more than 4% in out-of-hours trading. This increase is in response to the news that billionaire investor William Ackman’s hedge fund, Pershing Square, has bought more than 3.1 million shares in Netflix since Friday - a position worth more than $1 billion and which makes the hedge fund a top 20 shareholder.
The streaming platform’s share price, which soared during the pandemic, has fallen more than 48% since hitting an all-time high in November. Ackman appears to believe that this fall in price has presented a buying opportunity, citing Netflix’s highly recurring revenues and industry-leading content.
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