Well that answered everything and nothing. The Fed wisely (in our view) held off on hiking interest rates in Thursday’s long-awaited decision. Now we hopefully have a few more weeks of relative peace before the drumbeat gets going for if they’ll hike or not at the next meeting.
Markets initially took happily to the news, with S&P 500 futures shooting back over 2000 for the first time in awhile. At one point, the Ultra VIX Short-Term Futures ETF (UVXY) was down 15% on the day, and this author was prepared to highlight how unusual it is that this ETF closes down 15% or more three days in a row.
Well, it stayed somewhat rarer, as the market folded like a cheap suit, giving back all the Fed-induced gains, and volatility roared back, closing nearly flat on the day.
Where To Now?
There’s at least two ways to view the Fed’s decision not to hike, one of which is bullish for the market, and the other being bearish. The market expressed both these takes, initially rallying and then dropping hard.
The positive take is that the Fed is aware of the global risks the worldwide economy is currently facing, and is prepared to stand aside until these threats diminish. In doing so, the Fed will not cause the dollar to rise further in the short run. The rise of the dollar has been behind much of the collapse in commodities and emerging markets that sent the global economy into a tailspin in the first place.