According to Bloomberg News, Jerome Powell’s announcement related to the rate policy has left traders and investors guessing about the Federal Reserve’s plans as have been in the last 20 years. Consequently, there is a severe uptick in the market’s volatility.
In the past week, there have been three of the biggest intraday swings in 10 years, with uneasiness creeping in stocks and is approaching levels that were last seen in 2020 March, when there was an outbreak of coronavirus.
As per the Cboe Volatility Index, an options-derived equity turbulence measure, it was found to be well above 30 for most of the five days, which is almost two times its level at the beginning of the year.
And amid the storm is Jerome Powell, Fed Chair, whose announcement on Wednesday about withdrawing economic stimulus created confusion in the markets.
The re-pricing process was relatively swift with the bond market now gearing up for five hikes in 2022, including a rare 50 basis point step that will be taken in March, a move that has not been witnessed since 2000. While this is essentially an outlier opinion, 30 basis points of tightening are around the corner, indicating approximately one-in-five odds related to a half-point hike.
Bloomberg News reports that the S&P 500 narrowly rallied on Friday to avoid a loss of the fourth straight week, completing the week 0.8% higher. The S&P 500 was seen swinging on an average of 3.4% daily, the most witnessed in the turbulent week since March 2000, between the Fed’s meeting and earnings by the big tech giants.
The causes of pain have been attributed to aggressive Fed hikes in which the valued tech stocks seem to be the most susceptible to the Fed’s actions. The NASDAQ 100 completed the week at just about 0.1% higher, which is a tiny move that covers up the most aggressive gyrations ever since the crash of the dot-com.
Earlier, investors have dealt with the Fed’s tightening of policies, but it has been a long time since it dealt with an approach less transparent in a while, given the pace at which the hikes are taking place.
Back in 2015, the then-Fed Chair, Janet Yellen, revealed that conditions would be such that there would be a gradual increase in the rates. But Powell has not made any such announcements where he claimed that the hikes would be “gradual”. However, the Fed chief did say that the officials would opt for a “nimble” and “humble” approach as far as the hikes and adjusting policies were concerned.
Bloomberg News reports that it would be a 50 basis points move for the analysts at Bank of America so that the worst ever inflation in the last four decades could be tamed. The only ray of hope that investors have been given is that the US economy is getting stronger, which means that the profits might be higher in 2022.
