FED LEAVES RATE UNCHANGED -- BONDS RALLY ON FALLING YIELDS -- DOLLAR WEAKNESS BOOSTS GOLD -- STOCKS SUFFER DOWNSIDE REVERSAL
INITIAL REACTIONS... The Fed left short-term rates unchanged today. The two main reasons given were lower inflation and weakness in foreign markets. Ms. Yellen, however, stressed in her press conference that the U.S. economy still looked solid and that a rate hike by yearend was still possible. Not surprisingly, bond yields fell on the news as bond prices rose (Chart 1). Rate sensitive stock groups like homebuilders, utilities, and REITs ( which benefit from lower rates) gained ground. Banks and insurers (which were hoping for higher rates) lost ground. The dollar weakened (Chart 2) which help lift gold (Chart 3). U.S. stocks initially rose before giving up their gains. Chart 4 shows the S&P 500 SPDRS (SPY) reaching overhead resistance at its 62% Fibonacci retracement line before suffering a downside reversal in heavy trading. It looks like traders sold into the stock rally. We'll take another look tomorrow at how the various markets are reacting to today's Fed decision.
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Chart 1
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Chart 2
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Chart 3
