Yesterday, the Federal Reserve raised interest rates by one quarter of a point. The US stock market initially rallied on that news, but then dumped into the close, with the DOW falling over 500 points, as Federal Reserve Chairman Jerome Powell held a press conference to explain the Federal Reserve views and what it is thinking may happen with its next move at its May FOMC meeting.
Gold, though, soared into the close. Gold has been outperforming the US stock market since New Years of 2022, as you can see from gold/spx ratio on the bottom of this chart.
Gold is now becoming a necessity to have in a portfolio, from both a diversification and a performance booster, as we are at the end of the current interest rate hiking cycle, stress is showing up in the banking system, and inflation remains high.
A few weeks ago, expectations were that the Federal Reserve would be raising rates again at its next couple of meetings, but with the interventions the Federal Reserve and Treasury had to make in reaction to stress in the regional banking system those odds greatly diminished going into yesterday’s meeting. The CME Fedwatch Tool now only has a 49.9% chance of an additional hike in May.
Jerome Powell explained why at the press conference. He stated that the Federal Reserve “may” raise rates at that next meeting. He didn’t say they would or would not, but just that they “may” do so. He said the reason why is that there is now concern with the problems encountered with the regional banking system, and that many of his fellow Fed board members believe that banks are going to tighten up on lending to such a point that it will be like there already had been additional rate hikes in the system.
This is a downgrade in the Federal Reserves outlook on the economy.
I turned bullish on the stock market in January, after having been bearish starting back in the summer of 2021, but turned to neutral once the banking news hit two weeks ago. It’s just hard to have a continued sustainable expansion when the banking system is under stress.
And yet the inflation threat remains.
That’s why gold and silver are both coming alive again.
Here is what a lot of other smart traders are thinking.
The good news: Yesterday’s gap was filled. The bad news: Big outside reversal day today. (Turned out that it was Janet we needed to worry about, not Jay…) pic.twitter.com/qTaDEixnxV
— Walter Deemer (@WalterDeemer) March 22, 2023
$COMPQ $QQQ Stocks reversed lower today post FOMC. News driven market, the “easy money” from the oversold bounce ended yesterday. Technically the short term trend and long term trend is negative in most stocks except for $QQQ $SMH $XLK. Convoluted environment at the moment. pic.twitter.com/GZd9vlEbvj
— Victor Riesco, CMT (@Global_Trader) March 22, 2023
Lots of comparisons being drawn to 2008 given banking stress, but not same image for S&P 500 … at this point into bear market during GFC (blue), stocks had fallen much harder than current drawdown (orange)
— Liz Ann Sonders (@LizAnnSonders) March 21, 2023
[Past performance is no guarantee of future results] pic.twitter.com/mS2JDIIl3D
“Short seller”
— Grant Williams (@ttmygh) March 22, 2023
Why do they always reduce @AlderLaneEggs down to just that! He’s so much more!
💪
Short seller warned US regulator about Signature Bank in January https://t.co/o42QEVwLcT
Banks were regulated into buying all those USTs b/c:
— Luke Gromen (@LukeGromen) March 22, 2023
1. US govt deficits were blowing out (blue)
2. Foreigners stopped buying enough USTs (inverted, red)
Banks buying USTs meant the Fed didn’t have to QE, but now banks aren’t buying anymore while the US deficit is rising again. pic.twitter.com/lRcoTCl2tJ
This really is a good explanation of banking. pic.twitter.com/EUx3LFYiuc
— Jim Bianco biancoresearch.eth (@biancoresearch) March 21, 2023
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-Mike
