Dissecting Federal Reserve Comments and Market Impact | Episode 069 | 11-09-23

In this episode, we'll dissect the recent market shifts triggered by a crucial Federal Reserve speech and explore the impact of a notably weak 30-year Treasury bond auction.

We'll walk you through the unexpected comments from Fed Chairman Jerome Powell, highlighting the deviation from the market's previous expectations post-November 1st. Despite a significant equity rally, the Fed stands firm – no interest rate cuts are on the horizon. Powell emphasizes their commitment to addressing inflation, indicating that rate hikes are still on the table.

What happened? A substantial sell-off in both equity and bond markets, with yields experiencing another surge. We stress the importance of caution in light of these developments. The Fed's transparency underscores their prioritization of inflation over immediate economic growth.

With a focus on prudent asset allocation, we've maintained a conservative stance on interest rate exposure, aligning closely with benchmarks. Our caution extends to high PE growth sectors in the equity market, as today's sell-off reflects the market's reaction to the Federal Reserve's hawkish tone.

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Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of Markets. With Megan, we're going to talk about the markets today. The Federal Reserve had a much anticipated speech. Jerome Powell made some comments that move the markets. But we want to start with what initially started the move in the market and that was a really weak Treasury auction. The 30-year Treasury bond was issued today Really awful auction. We've had some weak auctions in the past and it's resulted in interest rates moving higher, but this one was really bad. When you look at the yield that came out, it was much higher than was anticipated. The bid to cover ratio that was very low. So this is just a weak auction. It started to sell off in the bond market and then Federal Reserve Chairman Chiro and Powell came back out and what is surprising to me is that he didn't make any different comments than he did at the meeting on November 1st. Yet since November 1st we've seen a pretty big rally in the equity markets, thinking that the Fed was going to cut interest rates. They said they're not going to. They reiterated that. He reiterated that in his speech today, saying that they still have a long way to go with inflation, that rate hikes are not off the table. This has resulted in equities turning back around pretty big sell-off in the equity market today. A pretty big sell-off in the bond market as well, with yields rising Again.

The Fed is being very transparent with what they're telling us. We've been mourning investors about this for a while. The Fed is telling us that rate cuts are not on the horizon. Inflation is still their most important concern and they will do whatever it is for inflation at the expense of economic growth. This is why we're cautious about growth.

We still think a recession is unavoidable and we think there still is time that we're going to see these tight monetary conditions filter into the economy. This is going to have an impact on economic growth. This is the only way we're going to be able to get inflation under control and we've consistently told people that From an asset allocation perspective, we haven't been long interest rate exposure. We've been relatively close to the benchmark and we've been warning and have been very cautious on those high PE growth type of sectors in the equity market. We're seeing these sell-off today as a result of these hawkish comments from the Federal Reserve Chairman. We'll be back with more details on the markets and if you have any questions or comments, please feel free to reach out to podcasts at verdencecom. Thank you,