Wall Street continues upside correction on dovish FOMC

• DJIA, added 29 points, or 0.1%, to end near 26,504.
• S&P 500 ends higher by 0.3% to end around 2,926.
• The Nasdaq Composite was up 0.4% to end around 7,987.

Wall Street climbed higher following the Federal Market Open Committee where the Fed opened the door to rate cuts later this year. US stocks got a boost from the removal of the phrase "patience" from its policy statement, and said it stood ready to act appropriately if risks to the economic outlook reared their head. The Dow Jones Industrial Average, DJIA, added 29 points, or 0.1%, to end near 26,504 while the S&P 500 SPX ended higher by 0.3% to end around 2,926. The Nasdaq Composite was up 0.4% to end around 7,987.  

FOMC outcome

"The FOMC today left the fed funds rate unchanged, but significantly changed their language around future policy, taking out the reference to being “patient” on borrowing costs and signalling that cuts would likely be delivered in coming months if the growth outlook were to deteriorate. Growth was described as “moderate” rather than “solid”, clouded by “uncertainties”, and the inflation forecasts were reduced. In the first dissent since Powell took the helm, St Louis Fed Chair Bullard voted for an immediate rate cut. The dot plots were unusually divided, with eight of 17 committee members expecting a cut by year end, eight seeing no change, and one forecasting a hike. The market will strongly side with the would-be cutters unless the data flow changes tone. In the press conference, Chair Powell noted that he intends to serve his full four year term.

Analysts at ANZ Bank explained

• CME FedWatch Tool shows 89% chance of a 25 bps rate cut in July

Statement comparison:

FOMC main takeaways:

• Interest rate on excess reserves unchanged at 2.35%.
• Benchmark interest rate unchanged; target range stands at 2.25-2.50%.
• Drops language saying it would be 'patient' on future policy adjustments.
• Uncertainties have increased regarding outlook for sustained economic expansion.
• 9:1 policy vote, Fed's Bullard dissented because he wanted a rate cut
• To act as appropriate to sustain econ. expansion with a strong labour market, inflation near target
• Economic activity is rising at a moderate rate
• Household spending appears to have picked up but business fixed investment has been soft

Dot Plot

DJIA levels

Meanwhile, the technical outlook for the DJIA had switched to bullish this week and moving out of the sideways consolidating above the 61.8% Fibo retracement level of April to June swing highs and lows. The 78.6% mark in the 26200s with a confluence of the 12th April gap was a key upside objective was breached and bulls can continue to target the 27000 psychological level. However, on the flip side, the 25200 level comes in around the 11th March swing lows. 25000 guards a run towards 24500s and then 50% of the upside run made at the end of Dec at 24150.