The reason for the Fed’s continued rate hike pause, according to Powell, had to do with a reduced 2019 economic forecast that saw growth contracting further than initially expected. The tempered outlook for the rest of the year may have contributed to Wednesday’s afternoon market rout, in addition to the sagging bank stocks.
But what’s particularly intriguing about the market’s reaction is that these days, it’s rare to see an equity slump after the Fed decides it won’t raise rates – even if that means their economic outlook is somewhat on the pessimistic side. And though this may sound strange to younger investors (myself included), in the past, rate hikes typically didn’t coincide with a market dip.
Rather, bulls took it as a sign that the Fed thought the economy was strong. And a strong economy meant that businesses would continue to grow at a healthy clip – so why not buy some equity in those companies to go along for the ride?
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