As I wrote yesterday, the Fed’s action on Wednesday was seen as a rate cut, since Janet Yellen stood still on the desire to raise rates this year.
The Fed lowered its projection of four rate hikes to two for 2016. I believe there will be no rate rise in 2016 due to poor economic growth and the presidential election.
That said, the global central bankers are losing their ability to control currencies with their actions. Traders are taking matters in their own hands in search of return as they bid up the yen and euro over the dollar recently.
The moves in yen and euro go against past trading practices of selling weaker currencies after central bankers used monetary policies to print additional currencies to weaken the money to facilitate trade.
With all that said these actions could create a run up in stocks in the short-term. With the Fed’s actions keeping lending costs low, stock buybacks may ramp up. This has been the main driver behind rising equity prices over the last month or so.
You’ll see price pullbacks as quarterly quiet periods begin in mid-April when companies begin reporting “earnings.”
The outlier in this latest run-up in stocks is the performance of precious metals, silver in particular. When stocks and precious metals move in the same direction something is afoot.
Gold is up 16.7% over the last 3 months, while silver has seen a 15% rise over the same period, while stocks are now flat for 2016.
The precious metals movement belies underlying concerns over growing inflation fears traditionally. But stocks will generally pullback if the markets see inflation fears, so the mixed messages have to work itself out. One of these two moves will have to reverse itself in the mid-term.