To be sure, “volatile” is a relative term these days.
But that’s how some traders are describing what we saw in equities during Yellen’s presser.
No one seems quite sure how to interpret the messaging and indeed, it’s not 100% clear that the committee did indeed deliver the “dovish” slant on the hike that many suggested would be absolutely necessary following this morning’s lackluster inflation data.
Whatever the case, the dollar recovered some of its morning losses and Treasury yields ticked higher as Yellen spoke. Stocks dipped and the VIX showed some sign of life as Yellen suggested subpar inflation prints won’t persist given the tightening labor market as the central bank continues to normalize:
Here’s some of the color from traders and analysts…
Traders Say Stocks Caught Napping by Surprisingly Hawkish Yellen
Equity markets turned volatile during Fed chair Janet Yellen’s press conference Wednesday as traders weighed softening economic data against the central bank’s resolve to continue hiking interest rates in 2017. Here’s how some on Wall Street are reacting:
- Fed, after “genuflecting in the face of weak U.S. or global data,” now “seems determined to keep to a steady if gradual pace of tightening,” wrote Michael Shaoul, chairman of Marketfield Asset management. “This has apparently come as a bit of a surprise to a market that had greeted this morning’s CPI report as potentially a ‘game changer.”’
- “The combination of the data we got today and what the Fed said is playing into this reaction,” Scott Wren, senior equity strategist at Wells Fargo Advisors, said by phone. “Despite some of the inflation data lately the Fed is not changing their outlook. Stocks are starting to reflect what the bond markets caught onto awhile ago, and rate hikes are headwinds to multiples.”
- “Maybe people were thinking the Fed would back off balance sheet unwind considering how much they’ve talked about their concern on inflation,” said Yousef Abbasi, a global market strategist at Jonestrading Insitutional Services. “You have to ask the question how aggressive the Fed willing to be now, and do they really have any reason to be much more aggressive.”
- “Everyone is concerned about the path of interest rate increases as well as the methodology for reducing the balance sheet, and this is creating a little bit of volatility intraday,” Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey, said by phone. “The volatiolituy should creep higher in to the course of the summer months as Fed moves further in adjusting the balance sheet.”
- “The Fed seemed to be firm in general outlook in the need for tightening, and that was taken pretty well right after the announcement, but as investors digested Yellen’s conference they became more concerned with the risk associated with the economy that has proved itself softer with inflation indicatrors lower than anticipated,” Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, said by phone. “This afternoon’s selloff after a flurry of buying spree is an indication of this uncerainty.’