Hawkish Market Response to FOMC, But We See Overreaction

“If everything you try works, you aren’t trying hard enough.”  ~ Gordon Moore

Good evening:

As the week opened, Head of Technical Strategy Mark Newton pointed out that in the past, this week has been one of the worst of the year in a historical/seasonal sense. This trend continued this week, with stocks sliding slightly on Monday and Tuesday, then falling sharply after the FOMC meeting and subsequent press conference. 

“We’ve seen a pretty sharp sell-off in both equities and the bond market,” our Head of Research Tom Lee acknowledged, “and that’s naturally led to a lot of angst.”

With the target range for Fed funds remaining unchanged this month, it’s clear that the markets had a hawkish reaction to the FOMC’s dot plot and Summary of Economic Projections (SEP). We saw a shift in the committee’s median expectations of YE 2023 and YE 2024 rates, as well as improved projections of GDP, inflation, and labor markets. Many market participants viewed the higher expectations for YE 2024 rates as a shift toward a “higher for longer” stance. Yields surged to multi-decade highs and equities sank in response.