So much for liftoff. U.S. stocks zigzagged on Thursday after the Federal Reserve decided not to raise interest rates due to concerns about global growth.
The decision dashes hopes on Wall Street for clarity on interest rate policy. It’s also likely to only reinforce concerns that China’s economic slowdown and financial turmoil represent a threat to the rest of the world.
The Dow had been about 50 points in positive territory before the Fed decision was announced. Shortly afterwards it was down about 50 points. In more recent trading it was up 40 points, while the Nasdaq was up 0.6%.
Investors are now waiting for further guidance from Fed chief Janet Yellen on whether to expect a rate hike during the October or December meetings — or not until next year. Yellen is scheduled to hold a press conference beginning at 2:30 pm ET.
“You’re likely to get a hike later this year. The Fed just bought themselves a little bit more time,” said Russ Koesterich, global chief investment strategist at BlackRock.
The Fed decision was one of the most highly anticipated events in recent Wall Street history. It has the power to significantly influence the course of stocks, bonds, currencies and overseas markets not just on Thursday, but for months to come.
It’s “the most widely debated, dissected, analyzed and now traded capital markets event in my 25 years on the Street,” Nicholas Colas, chief market strategist at ConvergEx, wrote in a note to clients.
The crazy thing is, despite all the attention there remained great mystery over what the Fed would do up until the decision was actually announced.
Traders had been correctly betting against a rate hike due to turbulence in financial markets created by global growth worries fueled by China. All you need to do is recall the unprecedented 1,000-point Dow plunge on August 24.
Many economists believed a rate bump would finally happen because labor markets have improved drastically and the Fed needs ammo (room to lower rates) for the next emergency.
At the same time, investors (and financial journalists) are tiring of the endless debate over Fed policy. It’s fueling uncertainty that markets hate.
There was even debate over whether a rate hike would help or hurt stocks.
The stock market has been a big winner of the Fed’s emergency policies. Near-zero rates make risky assets like stocks more attractive than keeping cash in the bank, where it would earn nothing at all. So it stands to reason that stocks could react negatively to a rate hike.
On the other hand, a rate hike represents a vote of confidence in the state of the U.S. economy — and vice versa. A stronger economy is great for corporate profits and thus stocks.