To The Moon

The Fed raised the interest rate by 0.75% which was expected but the S&P 500 reversed course and closed down 2% for the day. Shouldn't the market have already priced in this rate hike? Yes, the market has priced in the current rate hike but it has not priced in the future rate hikes. There was a shift in the expected rate hikes after the last Fed meeting. So the market adjusted for the new piece of information. Markets are forward looking. This is where we look at the Fed's dot plot - a chart that records each Fed official's projection for the central bank's key short-term interest rate. In June, the median 2022 year-end projection was 3.4% while for end-2023 was 3.8%. The dot plot released yesterday showed that the expectation has risen. End-2022 projection rose to 4 - 4.5% while end-2023 saw 4.5 - 5% estimates. There's also no easing of interest rate until 2024. A very quick escalation considering only 3 months have passed. While the accuracy of the dot plot is a suspect, it does signal how increasingly hawkish the Fed has become which brings about more recessionary fears to the markets. It doesn't help when the Fed chairman's language was harsher than previous speeches. The term 'soft landing' has been ditched and Powell replaced it with 'some pain'. He said, "higher interest rates, slower growth and a softening labor market are all painful for the public that we serve, but they're not as painful as failing to restore price stability." It is also going to be painful for growth stocks for the next few years too. PS: I will be doing a live webinar on Tiger platform on 27 Sep 2022 - register here https://live.byteoc.com/9999/6253271