Here's the real reason stocks rose after a do-nothing meeting, says this ex-New York Fed trader

Here's the real reason stocks rose after a do-nothing meeting, says this ex-New York Fed trader

  • 20.03.2025 11:15
  • morningstar.com
  • Keywords: danger, success

Stocks rose after the Fed’s meeting due to its decision to reduce bond selling, injecting liquidity into banks. This move, along with easing options hedges, boosted markets despite the lack of rate changes or guidance.

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Dow Jones

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Dow Jones is a major media company known for its financial news and data services. It plays a significant role in shaping market perceptions and investor decisions through its coverage of global financial markets, including the stock market trends mentioned in the article.

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The Federal Reserve's policies directly impact the economy and financial markets. By adjusting interest rates and implementing quantitative tightening, the Fed influences investor behavior and overall market stability.

Context

Analysis of Stock Market Reaction After Federal Reserve Meeting

Key Insights and Market Implications

  • Fed's Inaction Sparked Market Movement: Despite the Fed not changing interest rates or rate forecasts during its meeting, U.S. stocks rose significantly. This was driven by the Fed's decision to taper its quantitative tightening (QT) program from $25 billion to $5 billion per month.

  • Quantitative Tightening Tapering:

    • The reduction in QT was described as a "huge" move by Joseph Wang, a former New York Fed trader.
    • This action aimed to address liquidity concerns in the banking sector, particularly as the debt ceiling approaches and the Treasury General Account (TGA) is replenished.

  • Debt Ceiling Concerns:

    • The TGA currently holds over $500 billion. When the debt ceiling is raised, the government will issue a large amount of debt to rebuild the TGA, potentially removing liquidity from the banking system.
    • With already low bank reserves, this could cause friction in the financial system.

  • Market Reaction:

    • The tapering of QT and removal of options hedges contributed to the rally in stocks and bonds.
    • Gold prices hit a record high, reflecting safe-haven demand amid uncertainty.

  • Asset Performance (1Y TD):

    • S&P 500: +8.63%
    • Nasdaq Composite: +8.44%
    • 10-Year Treasury Yield: -1.80 basis points
    • Gold: +39.61%

  • Economic Data and Corporate News:

    • Upcoming economic indicators include weekly jobless claims, Philadelphia Fed manufacturing survey, and existing home sales data.
    • Companies like PDD Holdings, Accenture, FedEx, Nike, and Micron are set to report earnings.
    • Nvidia-backed AI startup CoreWeave is planning an IPO valued at up to $2.7 billion.
    • SoftBank Group announced a $6.5 billion deal to buy semiconductor designer Ampere Computing.

  • Tariffs and Trade Impact:

    • The market's short-term effects are tied to the Fed's actions, but long-term implications will depend on White House policies, particularly tariffs.
    • Imports ahead of tariff deadlines are slowing, as seen in container traffic data from Los Angeles and Long Beach ports.

  • Cryptocurrency Sector:

    • Kraken is nearing a $1.5 billion deal to acquire NinjaTrader, signaling continued interest in cryptocurrency exchanges.

  • Strategic Considerations:

    • The Fed's cautious approach reflects uncertainty about the accuracy of soft data (consumer surveys) versus hard data (economic indicators).
    • President Trump's call for lower rates echoes his first term, where similar pressures led to a Fed pivot.

  • Long-Term Effects:

    • The tapering of QT and potential debt ceiling-related liquidity issues could have lasting impacts on market stability and monetary policy.
    • Tariffs and trade policies will likely shape corporate earnings and global supply chains in the coming months.

Conclusion

The stock rally following the Fed's meeting highlights the importance of subtle policy shifts, such as tapering QT, in influencing market sentiment. While short-term factors like liquidity management and options hedging drove immediate gains, long-term implications will depend on debt ceiling dynamics, tariff policies, and corporate earnings.