Скачать или смотреть Reactions to the May 2022 Federal Reserve Hike and Comments

Summary Reaction:
We got the widely expected 50 bps rise. Interestingly during the press conference, the stock market reacted positively across asset classes, indicating Powell comments reassured investors.

For me the biggest question on investors’ minds is can the Fed achieve a “soft landing”, meaning can they reduce inflation without causing a prolonged economic slowdown or even a recession. The fear shown in equity markets across US assets seem that investors DO NOT have confidence in Federal Reserve. The Federal Reserve has been widely criticized for reacting too late to extreme inflation and this has deeply eroded confidence around the US economy and the stock market.

Hikes Ahead:
Chairman Powell largely dismissed 75bps rate hikes in the future, setting expectation for four more 50bps rises possibly even to a target overnight rate of 3% from todays’ target of .75% to 1%

Challenges for Investors:
It is highly unusual that bond prices and stock prices have been so closely correlated, both moving down, for such an extended period of time and for such an extreme amount (The Wall Street Journal highlighted that the US Barclays’ Index was down -10% YTD and the S&P 500 is down -13%). Even traditional safe havens like Gold were down in April.

Value over Growth:
If remaining in equity market large cap Value has been the strong relative performer, a large contribution from Energy, overriding the poor performance from Financials. Defensive positioning has proven to significantly less volatile and have more stable valuation YTD.