Markets are on the rise midday Thursday after the Fed’s decision yesterday to hold rates steady.
SPY, the SPDR S&P 500 ETF Trust jumped just under half a percentage point as investors let anxieties about rates subside. DIA, the SPDR Dow Jones Industrial Average ETF Trust was also in the green by midday, rising over 0.6%.
Investors weren’t expecting a change in interest rates, and now are wondering when and if to expect cuts. In his speech Wednesday, Fed Chair Jay Powell stated the Federal Reserve “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
Powell highlighted the “lack of further progress” towards the Fed’s inflation goal as inflation remains persistent and stubborn. While investors had originally hoped for 6 rates cuts this year, that optimism has now faded. According to the CME Fed Watch Tool, markets don’t anticipate rate cuts until September at the earliest.
The “higher for longer” rate environment has been particularly painful for fixed income investors who piled into Treasurys in 2023.
The largest treasury ETF, TLT, the iShares 20+ Year Treasury Bond ETF, has been especially hard hit as anxieties around rate cuts have caused the share price to whipsaw. Longer term bond yields rose Thursday after the Fed’s decision, and TLT was little changed.
TLT VS. TBIL Total Return
Source: etf.com
Shorter term Treasury investors saw funds rise as bond yields dropped as the Fed Chair noted the strength of the U.S. economy. TBIL, the U.S. Treasury 3 Month Bill ETF was little changed.
After the bell, investors will look to Apple Inc. which is set to report quarterly earnings. It’s one of the last members of the Magnificent Seven to report; investors will have to wait until the end of May before NVIDIA Corp. takes center stage.
QQQ, the Invesco QQQ Trust which tracks the tech-heavy Nasdaq rose by midday Thursday, jumping more than half a percentage point. As investors awaited Apple earnings, MAGS, the Roundhill Magnificent Seven ETF which holds the Mag 7 in its fund, jumped about the same.
On Friday, investors will look to the the April jobs report for clues about the strength of the U.S. economy.