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 .
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 . 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.
|S&P 500||3,962.71||– 0.16% (-6.23)|
|Dow 30||32,825.95||– 0.39% (-127.51)|
|NASDAQ||13,471.57||+ 0.09% (+11.86)|
|Russell 2000||2,319.52||– 1.72% (-40.65)|
|VIX||19.79||– 1.20% (-0.24)|
|US 2-YR||0.14%||+ 1 bps|
|US 30-YR||2.38%||+ 1 bps|
|OIL||64.79||– 0.02% (-0.01)|
|GOLD||1,729.30||– 0.09% (-1.50)|
|Bitcoin||56,368.32||– 0.25% (-143.55)|
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.
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%.
Oil price is hovering around $64 – $65 per barrel to assess the stimulus package’s market reaction and the economic reopening.
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 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: Roblox IPO – Dow Sets Record High
|Company||Industry||Most recent valuation||Status|
|Roblox||Video games||$42.39 billion||Public|
|Affirm Holdings||Loan platform||$20.80 billion||Public|
|Instacart||Grocery delivery||$30 billion||Private|
|Bumble||Online dating||$8.42 billion||Public|
|Robinhood||Financial trading||$11.7 billion||Private|
|Nextdoor||Localized social network||$4 billion||Private|
|Gitlab||Open-source code management||$6 billion||Private|
|Coursera||Education platform||$5 billion||Private|
|Coinbase||Cryptocurrency platform||$8 billion||Private|
|UiPath||Robotics software||$10.2 billion||Private|
|Petco||Pet retail||$6 billion||Private|