Traders Sell Wall Street As Fed Hikes, Will Stocks Rally?

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Wall street top companies with over 90% institutional ownership

Is this a sign that further gains may come from Wall Street, or will things turn?

The Fed’s 75bp Rate Hike

John Kicklighter, Chief Strategist at DailyFX comments:

While a back-to-back 75bp rate hike from the Fed is historically extraordinary – not since the 1980s have we seen anything like this – it was nevertheless ‘in-line’ with expectations. Hence, the market’s inertia with the news of the hike, but they sure did respond to Chairman Powell’s remarks in the presser after. While there are likely hikes still ahead of us from the US central bank, the tempo and terminal rate look to be more reserved after Powell implied that aggressive hikes were no longer a default and that the last three meetings of the year are ‘live’ – meaning they can be hawkish, neutral or dovish depending on the implications from data.

Q2 2022 hedge fund letters, conferences and more

 

While inflation is critical going forward – the Fed’s favorite PCE indicator is due on Friday –  it is more likely that the state of economic activity is the most important factor in this equation going forward. If the US exhibits a technical recession in the near future through 2Q GDP data, confidence surveys or yield curve inversion; don’t be surprised if the Fed announces a severe cut back in its rate path moving forward.

Wall Street Rallies Up A Storm

Daniel Dubrovsky, Senior Strategist at DailyFX comments:

Wall Street rallied up a storm despite the Federal Reserve hiking rates by 75-basis points. It seems that Chair Jerome Powell’s pivot away from a focus on forward guidance seemed to do the trick. The central bank is looking to a meeting-by-meeting basis for incoming tightening, focusing on the data. In that regard, rising fears about a recession are boosting speculation of a Fed pivot next year.

Despite the rise in the Dow Jones and S&P 500, retail traders are increasingly selling into recent price gains. As such, if traders continue to sell the stock market, the indicator could hint at further gains to come from Wall Street. S&P 500 futures have also confirmed a breakout above the 50-day SMA, pushing higher over 10% since bottoming in June. Immediate resistance seems to be the 38.2% Fibonacci retracement at 4017, with the 100-day SMA above. The latter could hold as resistance, maintaining the broader downside focus. Otherwise, extending gains places the focus on early June highs for resistance down the road.”


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