The U.S. equity markets are on a rollercoaster. The stock market indices move up and down with more aggressive reactions to the downside and then slowly but surely climbing to fully recover the entire move.
On Tuesday, the President of the United States (POTUS) signaled that there would be no new stimulus until after the November elections. The stock market promptly fell. The DJIA index, for instance, dropped several hundred points and closed at the lows.
However, in the after-hours it slowly recovered. Then, the recovery accelerated the next day. After all, on Wednesday was the FOMC Meeting Minutes on tap – telling us what the Fed discussed at the September meeting. On top of that, President Trump tweeted that the stimulus is back on the table.
September FOMC Minutes Details
The stock market in the United States acts as a patient on drugs – in this case, stimulus. The moment it will not receive the drugs anymore, the worse is doing. The same here – the moment the stimulus is not on the table anymore, the worse the stock market is doing.
However, this is normal behavior ahead of the elections. Even the previous elections saw such erratic market behavior, dependent on every headline.
Yesterday’s minutes did not disappoint markets. At the September meeting, the Fed priced in additional Congress for stimulus in their monetary decision. However, the stimulus did not come (yet), but the fact that the minutes “reminded” everyone of this possibility was enough to propel stocks even higher.
On the average inflation targeting front, some of the Fed members wanted to keep the rates where they are (at the effective lower bound) until inflation sits well above the 2% level for quite some time. This way, the argument was, the market sees that the Fed takes the commitment seriously.
All in all, it was all about fiscal stimulus and inflation at the Fed’s meeting. As usual, the market did not react much to the news. After all, it was nothing new when compared with the statement and press conference three weeks ago. Moreover, the stock market recovered the previous day’s drop way before the minutes hit the wire.
With no other driver around, the currency market followed suit. The USD followed the stock market pip by pip – it strengthened the day before the minutes and weakened after.
Expect the same market behavior to last all the way until November’s elections. In the meantime, avoiding overtrading is critical.