Stocks Fall – Bank Stocks Fall Along With Treasury Yields

The action on Wednesday was interesting. Both the sectors that like rate hikes and the sectors that don’t like rate hikes did poorly. The financials like rate hikes. However, they fell 0.99%, possibly because the Fed removed the term ‘accommodative’ from the statement.

This pushes the end of the hike cycle closer. However, the utilities and real estate sectors don’t like hawkishness. They fell 1.04% and 1.15%. It’s tough to explain how hawkishness hurt the utilities and real estate. Yet, dovishness hurt the financials. Obviously the Fed can’t be both.

The best sectors were communication services and consumer discretionary. They increased 0.35% and 0.19%.

In reaction to the Fed rate hike, the 10 year yield fell 5 basis points to 3.05%. The 2 year yield fell 1 basis point to 2.83%. That means the difference between the two rates is only 22 basis points.

I expected the 2 year yield to fall slightly because the rate hike was already priced in. There was a small chance two rate hikes would occur. The 10 year yield might have fallen because the risk off trade dominated. Optimism waned because the Fed is hawkish.

It’s tough to say if rates fell because of stocks or stocks fell because of rates. The financials don’t like lower rates and a flattening curve. It’s weird to discuss falling rates when the Fed just raised them. But that’s what happens when the Fed funds futures market considers a 50 basis hike a small possibility.

Stocks Fall – Rate Hike Causes Volatility

The charts below show the recent Fed decisions haven’t caused volatility in stocks or bonds. There was a bit of volatility after the Wednesday announcement.

Even though this decision was already priced in, the market shifted lower after a brief blip higher. I expected the blip higher, but not the subsequent decline.

The S&P 500 was down 0.33% on the day, increasing the negative streak to 3. The CNN Fear and Greed index has fallen to 53 which is neutral. This means I’m no longer bearish in the short term.