🏋FOMC in Focus🗝

Equity markets continued on their roller-coaster ride with significant earnings on the way. AMEX had a good run, and shares popped higher. Microsoft results were in line, but guidances disappointed. The stock fell sharply in after-hours only to recover as markets digest the latest corporate earnings to get a sense of the economy’s strength. 

💰FOMC: All hopes and eagle eyes🚘

The Fed will be the main focus of the day. However, two critical components, the interest rate hike and balance sheet runoff, are back in the game. 

⛳Interest rate and stock prices🧨

While interest rate hikes often cause a market downturn leading up to the first hike, stocks tend to rise in the period after the rate hike. Nonetheless, this time, such a trend may not be taken as a whole. 

The key is that in periods of the market upward trend with an interest rate hike, the Fed balance sheet has remained stable/sideway. In the current context, the risk is the combination of an interest rate hike coupled with a potential for a shrinking balance sheet means more downside risk for the stock. This means P/E compression as less liquidity is chasing assets. 

With that, Pika World maintains a cautious outlook and await the Fed to clear uncertainty and hopefully, that gives traders a risk-on appetite for the time being. 

Have a splendid day, 

Pika Nat.