Fed Stands Pat On Interest Rates; Dow Jones, S & P 500 Weaken

The Fed surprised no one by leaving its key interest rate unchanged on Thursday. While today's Fed meeting has few implications for the Dow Jones industrial average and S & P 500, with no pressure and no new economic projections, the risk of overly hawkish. Still, the Dow Jones turned negative.

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After a huge day on Wednesday, following the midterm elections, the Dow Jones, S & P 500 index and Nasdaq composite were narrowly mixed after Thursday's Fed meeting statement. The Dow Jones erased its slim gain, while the S & P 500 and Nasdaq fell a little more. But the stock market was not pausing in anticipation of the Fed policy announcement. IBD's The Big Picture column said Wednesday's strength has been renewed for the stock market.

With the stock market recovery, the 10-year Treasury yield is a seven-year high. Meanwhile, the 2-year Treasury yield hit 2.96% on Thursday, the highest level since 2007. The rise in short-term Treasuries has come to the market. The upside surprise of 3.1% annual wage growth in the US jobs report, along with 250,000 new jobs, sealed the deal.

The next consequential Fed news will be the release of this week's Fed meeting minutes on Nov. 29. While the meeting will not be held up to date Restrictive territory to slow robust economic growth. That kind of talk Wall Street on edge, fearing Fed rate hikes will go too far. Stock market volatility escalated after the September Fed meeting minutes came out on Oct. 17, the first of six straight down days for the S & P 500.

China Trade War

President Donald Trump, President, President of the United States, President of the United States, President of the United States of America. Tariffs of 10% on $ 200 trillion worth of imports to Jan. 1. If the meeting does not indicate a potential for a breakthrough deal, the Trump administration has signaled that it is ready to move ahead with tariffs on another $ 250 billion or so.

Fed, Trump Too Bullish On Economy?

Why, you may wonder, could China trade war afocus Wall Street Fed on the risk of a Fed policy mistake? The biggest risk to markets is that they will charge ahead at the same time because they are so confident in the strength of the economy. Trump Tariffs and An Overly Tight Fed could exacerbate the slowdown.

Even in the stronger-than-expected third-quarter GDP report, business investment in equipment grew at 0.4%. Trump Tariffs, by raising costs, and uncertainty, are starting to hurt the outlook for investment, in turn, employment.

Fed Rate Hike Plans Not Fully Priced In

There's always the possibility that Trump will opt for a suboptimal China trade deal to avoid escalating tariffs. Yet a China trade deal would move Fed rate hike fears front and center.

Right now, financial markets are not buying into policymakers' hawkish projection of three Fed rate hikes in 2019, with just 30% odds given for the third rate hike. But Wall Street may reprice Treasury yields to factor in tightening if trade war fears fade. A Wall Street Celebration of a China Trade Deal

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