The stock market's positive tone quickly evaporated after the expected quarter-point hike in the Fed Funds rate on March 21st. Markets love certainty; the latest rate increase was the sixth since the FOMC started raising rates in December 2015 and baked into the market cake. As such, a short relief rally ensued. With certainty past, focus shifted to Jay Powell's first press conference as Fed Chairman.
Powell's message wasn't as dovish as markets hoped. A fourth rate hike was too close a consideration for this year. Projections for three rate hikes, more aggressive than expected for 2019, sent the averages negative for the day.
As we mentioned at RIA last year, 2018 would be a year of volatility. Combined political and monetary-policy risks have created big moves in market volatility so far in 2018. The VIX has experienced seven sessions of one-day moves of 20% which already experienced seven sessions of one-day moves of 20%.
Similar to Yellen's optimistic stance back in December 2015 about the u.s. economic growth trajectory (which ostensibly proved false), Powell is convinced the U.S. economy is poised to require and handily absorb a faster pace of interest rate normalization.
The data screams he's incorrect.
