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If you have followed what Fed Chair has say in the conference call, there is still possibility of further tightening if economic development (like more banks facing credit crunch or deposit flight).

We need to remember that the new Fed meeting statement indicate that policymakers “will closely monitor incoming information and assess the implications for monetary policy.”

Hence, Fed did not rule out further rate hikes or explicitly announce a pause.

These are the factors that I would consider whether the rate hike could pause or Fed is ready to pivot.

Bank Crisis Due to Credit Crunch

Fed Chair has mentioned that the banking sector is “sound” and “conditions have broadly improved.” But he also highlight that credit appears to be tightening in a way that is more severe than normal.

Fed would continue to do an additional rate hike or two if there is no bank crisis. We have to go back to what Fed Chair has say on March 22 meeting that tighter credit stemming from the bank crisis would replace rate hikes, this would make less work to be done for the monetary policy.

At that time, I believe it is only guessing how much have the bank crisis slow the economy

Job and Wage Growth, Productivity

Fed Chair has indicated that labor market remains “very tight”. No doubt there is some softening, but wage growth is still some percentage points from where it needs to be in consistent with 2% inflation.

On Tuesday, job openings fell by 384,000 to 9.6 million in March. Even though this is 15% decrease since December, but there is still 3.8 million more job openings than unemployed persons.

On Wednesday the economy added a surprisingly strong 296,000 private-sector jobs in April.

How S&P 500 react to Fed Meeting

As Fed Chair speak S&P500 began to decline. This keep going in late Wednesday afternoon until it close at 0.7% lower.

Investors may not get a clear-cut pivot message, but what could be of comfort is Fed Chair believe that U.S. economy could skirt recession.

A Fed pause signal was priced in before Fed Meeting(03 May).

We might see S&P500 trying for a new High as investors might believe that Fed has dropped the tightening bias.

Summary

From what I have observed, this is not the first time we are expecting Fed to pivot or rate hike pause. But if we look deeper, Fed might decide to pivot as bank crisis has “slowed down” the economy.

I think we need to ask ourselves this question, how big a bank crisis can the market or investors afford just because we wanted to avoid further rate hike.

There must be a weighing of all the odds and with economic data to guide how the economy is moving, or rather which data is critical to assess.

What I believe as investors, we should continue to go for defensive stocks as any fluctuation due to any unfavorable economic data or investors decided to avoid “regional banks”.

I do hope that we remain cautious and observed how the market is moving, before we develop our trading plan.

I would still stay on defensive stocks like healthcare.

Appreciate if you could share your thoughts in the comment section on what are your thoughts of rate hike pause possibility? What stocks should we concentrate?

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Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.