The Federal Reserve has adjourned its latest FOMC meeting and gave somewhat concerned investors something to cheer about as the lead bank suggested that it would not increase borrowing costs this year. The immediate reaction was a positive one on Wall Street, as the stock market reversed a loss of about 160 points in the Dow Jones Industrial Average shortly before the 2:00 PM (EDT) monetary announcement and quickly eased its deficit to about 20 points. The S&P 500 Index and the NASDAQ, meanwhile, both went into the black.
To be sure, this was not a big surprise as the Fed had been telegraphing its more dovish leanings since late last year. In fact, much of this year's vigorous stock market rally can be traced to the Fed's shifting tone. Even so, this modest shift in tone was appreciated by traders, as the performance of the leading indexes can well attest. As for a rationale for the Fed's evolving position, one need not look any further than a comment in the bank's release in which it opined that "growth of economic activity has slowed from its solid rate in the fourth quarter."
The lead bank went on to report that "recent indicators point to slower growth of household spending and business fixed investment in the first quarter." Not surprisingly, the Fed continued to express its intent to remain patient on the monetary front. The bank vote was unanimous. As to the market's reaction after the first buying spree, the Dow remained slightly in the loss column while the other large-cap composites stayed in the black. All in all, it seems as if the equity market is heading for a positive outcome in this mid-week session, although there still is nearly 90 minutes of trading left.
- Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
