Impact of the State of the Union Speech and the Fed Announcement The State of the Union Speech and the Fed announcement did not have a significantly drastic effect on the market, but there could be lasting implications. TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
Investing and stock trading decisions depend a lot on the mood of investors following important decisions made by the government and the Fed. These affect the economy positively or negatively and that has a bearing on the stock market. Investors are naturally concerned before important announcements are made, and if the announcements sound positive overall it sends the market into a rally since investors feel good about it. The State of the Union speech by President Donald Trump on the night of Tuesday, January 30,involved a great deal of positivism about the economy such as the tax reform measures, and touched on areas such as infrastructure, trade, immigration, etc though there weren’t many details provided. And Motley Fool analyst Dan Caplinger points out there was a glaring absence of the mention of Social Security. How the Market Reacted During and After the Speech The speech initially pushed the stocks higher. And as it went on, the stock index futures experienced a climb. After the speech was over, though, as a result of a lack of details, those gains were given up and the stock futures ended the day flat. On Wednesday, the next morning, the market had an initial rally, www.tradezero.co
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helping put to rest the declines felt on Monday and Tuesday. But then there was the Fed announcement to come, and once that came there was some selling, as the following chart provided by Martin Tillier in his Nasdaq article reveals.
In a word, Tillier concludes there was no significant reaction from the markets following the State of the Union speech by Trump and the Fed announcement. The S&P 500 gained 1.38 points from Tuesday, when it closed at 2822.43, to Wednesday, when it closed at 2823.81. Tillier argues, though, that this lack of an adverse reaction by stocks is not an indication that there
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wasn’t anything significant in the long term from these two events, particularly the Fed announcement. The Fed Announcement There was a drop in the stocks when the Fed news came but they were, Tillier reckons, not a consequence of what was actually mentioned in the announcement but more a result of traders thinking about the potential negatives. Traders were worried about whether there could be hikes as the year went on and also about the inflation. The Fed announcement did seem to suggest more gains. Since the economy is progressing well and the threat of inflation is lurking, the FOMC has indicated a continuation of its accommodative policy. The market expects somewhere around three small Fed rate hikes, and the Fed’s release suggests that could be the plan despite the labor market that’s tight and the robust growth of the economy. What Your Ivesting Approach Should Be So as a stock trader or investor, what approach can you take? You can look at it from the perspective of the bond market. www.tradezero.co
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Following the release, treasuries extended the losses they incurred. The 10-year yield has risen over 2.75%. This is probably a reflection of the fears of the Fed’s accommodative policy causing sharp rises in rates and inflation in the future. Tillier then presents the option of benefitting from any opportunity that presents itself and buying on any dip. The conclusion is still positive. There could be some weakness in the coming days. But we find corporations managing to report record profits again from Q4 and anticipating tax cut benefits. With the Fed’s growth policies continuing, stocks look to be in good shape.
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