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Federal Reserve policy meeting – Dow falls from a record high | 2021 IPO hot list

Written by Leonardo Hadi · 2 min read >
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The Fed Policy Meeting: Interest Rate and Inflation

Dow falls from the record high following the upcoming Federal Reserve meeting on Wednesday to announce the policy regarding interest rate and inflation. There is a growing concern about the possibility of the interest rate hike that will signal inflation as the economy rebounding from the pandemic, lowering the stock market valuation.

Jerome Powell will announce the Fed policy at 2 pm ET to give the latest forecast about the economy, interest rates, and asset purchase program. Currently, the Fed is buying $120 billion a month in Treasury Bonds to keep the financial market fluid and maintaining the Federal Funds Rate near zero [1].

GDP and Unemployment Rate

In December, the Fed issued an economic projection of 4.2% of GDP growth, 5% unemployment rate, and 1.8% core inflation. The Fed will not likely change the easy money policy and asset purchase program until the core inflation hits 2%. In the third quarter last year, the Fed’s Chairman planned to allow core inflation to run higher than 2%, up to 2.25%-2.5% range, before increasing the interest rate [2]. However, the rising Treasury bond yield indicates that the market has taken into account the sign of overheating economy.

Bond yield on the rise

The short-term 2 YR bond yield rises by one basis point, while the 10-YR yield has gained from 0.93% early this year to 1.62%. 10-YR bond yield influences the mortgage rate and loans. The rise of the 10-YR bond yield will benefit the homeowners who renewed their mortgage last year with less than 1% fixed rate for five years.

Furthermore, the 30-YR bond gains another basis point to 2.38%. The long-term 30-YR bond yield had nearly doubled from the record low of 1.30% in May 2020. It explains the reason why the stock market falls into the correction territory. The yield has reacted to the positive outlook and booming economy after the stimulus package release and positive news on vaccine rollout.

Read more: Guide to spend stimulus money wisely – Bitcoin runs out of steam

Markets

Up/DownMarketPrice/YieldGain/Loss
S&P 5003,962.71– 0.16% (-6.23)
Dow 3032,825.95– 0.39% (-127.51)
NASDAQ13,471.57+ 0.09% (+11.86)
Russell 20002,319.52– 1.72% (-40.65)
VIX19.79– 1.20% (-0.24)
US 2-YR0.14%+ 1 bps
US 10-YR1.62%
US 30-YR2.38%+ 1 bps
OIL64.79– 0.02% (-0.01)
GOLD1,729.30– 0.09% (-1.50)
Bitcoin56,368.32– 0.25% (-143.55)
As of Market Close on Mar. 16, 2021.

Stock Market

S&P 500, Dow 30, and Russell 2000 fall from the record high ahead of tomorrow’s Fed policy meeting. The recent rally in the bond yield had triggered market rotation from the growth stocks into value stocks because the net present value of the growth stocks is lower than when the yield was at a record low, despite strong future cash flows. Nasdaq gains by nearly 12 points after several days of losing streaks as the non-technology stocks recovering from the dip.

Read more: Buffett’s Rule: Buy the Dip – Wild Stock Market Reversal

Bond Market

The long-term bond yield (30-YR) gains by another basis point to 2.38% ahead of the Fed policy meeting while the 10-YR bond is sitting at 1.62% and the 2-YR bond is at 0.14%.

Read more: Steepening and Flattening Yield Curves as Indicators

Oil

Oil price is hovering around $64 – $65 per barrel to assess the stimulus package’s market reaction and the economic reopening.

Gold

Gold drops to $1729 per ounce as Bitcoin loses another $143 in market value. Gold competes with Bitcoin and other cryptocurrencies to gain market share as the hedging instrument against the government-issued currency’s inflationary effect.

Bitcoin

Bitcoin loses momentum and falls slightly from its all-time high as India considers banning cryptocurrency. Bitcoin closed at $56,368 from more than $61,000 on Friday last week. India is putting together a bill to criminalize the possession, mining, trading, issuance, and exchanges of cryptocurrency assets.

2021 Billion Dollars IPO List

Read more: Bumble $13 billion IPO: 63% surge on market debut led by 31 years old female CEO

Read more: Roblox IPO – Dow Sets Record High

CompanyIndustryMost recent valuationStatus
RobloxVideo games$42.39 billionPublic
Affirm HoldingsLoan platform$20.80 billionPublic
InstacartGrocery delivery$30 billionPrivate
BumbleOnline dating $8.42 billionPublic
RobinhoodFinancial trading $11.7 billionPrivate
NextdoorLocalized social network$4 billionPrivate
GitlabOpen-source code management$6 billionPrivate
CourseraEducation platform$5 billionPrivate
CoinbaseCryptocurrency platform$8 billionPrivate
UiPathRobotics software$10.2 billionPrivate
PetcoPet retail$6 billionPrivate
Source: Bloomberg

Photo by Robert Bye on Unsplash

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Written by Leonardo Hadi
MBA from the University of Illinois at Urbana-Champaign. Quantitative Fund Investor. Professional Engineer. Operations Professional. Profile

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