The Fed Unanimously Votes to Raise Rates

US equity markets responded to the FOMC rate move, FOMC forecasts and commentary yesterday precisely as expected. The Dow Industrials (+1.28%), S&P 500 (+1.45%) and NASDAQ (+1.52%) all moved sharply higher after the FOMC Announcement, higher still after the FOMC Forecasts and yet higher after the Chair Yellen press conference. What, in my opinion, made the rally in equities even more impressive yesterday was the decoupling that emerged as crude continued its death march lower – losing nearly 4.5% on the day.

It was a good day for investors. The Dow Industrials, S&P 500 and NASDAQ all retook both their 50 and 200 DMAs on the session. Winners trounced losers by a margin of 8-3 on the NYSE and 2-1 on the NASDAQ. Every major market sector was solidly positive – led by Financials. In fact, only two sectors did not manage to gain more than 1% were Materials and Energy. Energy continues to suffer under the relentless pressure being exerted on it by crude.

Not only did the market welcome the 25bps move in rates by the Federal Reserve, markets also appeared quite comfortable with the framework for the shift in monetary policy as laid out by Chair Yellen. As I suggested in Tuesday’s and Wednesday’s morning note, the commentary after the rate move would be incredibly important. It lived up to the billing.

From my note on Tuesday, December 12th:

I suspect nearly as important as the widely anticipated move in rates will be the commentary that follows. I expect to see a liberal dose of “gradual”, “shallow” and “measured” in the text coupled with a tone that is deliberate but opened ended in regards any further moves. “Data dependency” will be the gate keeper for any further tightening.

According to an article in Bloomberg Business News published after yesterday’s Yellen press conference, ” Yellen used the word “gradually” or “gradual” about a dozen times in her hour long press conference to describe the pace of future rate increases.” The article goes on to outline the open ended nature of the time line for further moves – moves predicated upon data. Chair Yellen struck a balance between yesterday’s move on rates, investor expectations for the future and the Federal Reserve’s confidence. It was beautifully orchestrated and historic.

Today’s Economic Calendar has plenty on tap but truthfully none of the scheduled released will have much impact on the post FOMC Announcement mojo that assumed control of the market yesterday. Whatever importance can be placed on today’s data, it will largely be limited to the Weekly Jobless Claims and Leading Indicators.

With the FOMC Announcement now in the rear view mirror and with the majors all above their 50 and 200 DMA, the bias through year end should be positive for equities. Crude however will continue to plague the energy and materials sector even if the broader market has decoupled from it.

flickr photo: DonkeyHotey