Key Takeaways

  • Stocks take a slide as Federal Reserve meeting minutes weight on the bright outlook
  • The meeting minutes show there are no moves being made for rate cuts in the near future

The Fight’s Not Over

The S&P 500 took a nosedive during Tuesday’s trade, snapping a five-day victory run with a loss of 0.2%. The broad-market pullback impacted the other big index players, with the tech-heavy Nasdaq taking a 0.6% hit, followed by the Dow Jones with a 0.2% drop. Stocks wrapped up the session lower as markets reacted to the release of minutes from the Federal Reserve’s Oct. 31 – Nov. 1 get-together. 

The policy meeting minutes show that although economic activity grew at a “strong pace” and unemployment levels remain low, inflation still remains elevated. Further, the minutes reiterate the Fed is “strongly committed” to reducing inflation, with all 12 voting members of the FOMC collectively agreeing to maintain the benchmark interest rate at the current 5.25% – 5.50% – the highest level in 22 years. In saying that, the minutes also convey the fact that the Fed is more than willing to adjust its tight monetary policy, should “risks emerge” that would stand in the way of reaching their 2% goal. 

The minutes reveal nothing that we haven’t heard before. Fed Chairman Jay Powell has been very vocal about his wariness of “head fakes” in terms of a slowing down economy. Markets seem to finally have digested this message, with just over 5% of polled participants expecting a rate hike before the end of 2023, according to CME’s FedWatch Tool. 

In a nutshell, it seems that despite a string of better-than-expected Consumer Price Index (CPI) reports, the Fed isn’t getting its hopes up that inflation is on its way down to more stable levels. The meeting minutes suggest that FOMC members are still concerned that there may need to be further tightening to its monetary policy until they’re entirely convinced that inflation is on its way out. The next time policymakers will gather is slated for Dec. 12 – Dec 13.

The Bigger Picture

In that context, the US dollar index (DXY) is starting to recover from this week’s sell-off. There are positive signs that the greenback is stabilizing after being pushed out by rate cut expectations. Still suffering from a 2.3% drop in the last month, the dollar index has started making advances towards the 104 level, currently sitting at 103.7. Inline with the dollar, the benchmark 10-year US Treasury bond yield – which is traditionally affected by monetary policy – settled at 4.4% following the Fed’s bulletin, down from its October peak of 5.021%.

In other markets, spot gold continues its rally against the dollar, flying past the $2006 level Wednesday morning before getting cozy at the $2000 threshold. 

Given the recent Fed minute print, traders would be wise to consider the market’s sensitivity to market-moving news when mapping out their strategy. With a shorter trading week due to Thanksgiving, there is an opportunity to take some well-deserved time to reflect on your strengths, along with your weaknesses in terms of adaptability and ability to flow with markets.