The FOMC said it will be  “patient” on any future interest rate moves and signaled flexibility on the path for reducing its balance sheet, a substantial pivot away from its bias just last month towards higher borrowing costs. 

So much for a uneventful Fed meeting especially regarding dropping its previous language calling for “some further gradual increases.”  Many interpreted the Fed’s comment that it opened the door for the next move to be either up or down as it cited “global economic and financial developments and muted inflation pressures” in any monetary decisions.

The Committee also stated “household spending has continued to grow strongly…and economic activity has been rising at a solid rate and job gains have been strong.”  There was no reference to the shutdown.

I rhetorically ask is the Fed setting itself up for failure as the Treasury market trades upon expected inflationary pressures?  By the Fed’s admission, the economy is strong and historically the 10-year Treasury should be trading around a 4.5% yield in today’s environment.  The FOMC cannot lose the confidence of the bond market regarding the central bank’s commitment to combatting inflation.  The results will be disastrous.

Nominally changing topics, the private sector ADP Employment report was yet again stronger than anticipated.  This data bodes well for a potential upside surprise in tomorrow’s BLS data.  The statistics also offers evidence to the Fed’s opinion that the labor market is strong.

Equities responded positively to the outcome of the meeting with shares advancing another 100 points.  As widely notes the indices were advancing moderately following several earnings reports. Speaking of earnings, Facebook posted an upside surprise while Microsoft disappointed.  The shares responded accordingly.

What will happen today?  Will there be progress in trade negotiations?

Last night the foreign markets were up.  London was up 0.59%, Paris up 0.26% and Frankfurt up 0.09%.  China was up 0.35%, Japan up 1/.06% and Hang Sang up 1.08%.

The Dow should open flat as some are suggesting prices went too far too fast.  The 10-year is up 4/32 to yield 2.67%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.