U.S. stocks closed higher on Friday, 18th March 2022, after the Federal Reserve raised its benchmark rate for the first time since 2018. The move was widely expected and gave confidence to dip buyers to swoop up stocks that were considered oversold. The catalyst was probably the comments from Jay Powell that the economy was strong.
With China distancing itself from Russia to avoid U.S. sanctions, it gave hope to the market. Also, there were a lot of mixed signals that came from the Russia and Ukraine talks. But, it seems the market was more focused on the positive news and acted more on them than the negative ones.
During this interval, we also saw large volumes from triple witching, the expiry of futures and options.
For the week, the Dow Jones index jumped 5.5%, the S&P 500 rosed 6.1% and the Nasdaq Composite spiked an impressive 8.2%. The move in the Nasdaq takes it out of the bear market territory.
Here are the closing levels on Friday, 18th March 2022: –
| Last | Change | %Change | |
| Dow Jones | 34,754.93 | +274.17. | +0.80% |
| S&P 500 | 4,463.12 | +51.45. | +1.17% |
| Nasdaq Comp | 13,893.84 | +279.06. | +2.05% |
| U.S. 10Y | 2.15% | ||
| VIX | 23.87 | -1.80 | -7.01% |
There are many reasons for the bounce in the stock market, but the one that probably sticks out the most is the idea that the markets were oversold.
Was it because we saw a huge rebound in Chinese stocks, which is also considered oversold?
It seems too optimistic to conclude that all is well, and the markets can rally on from here.
But looking around, little has changed.
Russia is still in Ukraine and as much as we want to see a resolution or withdrawal of Russia, there is no indication that that will happen soon.
Meanwhile, commodity prices are still on the high side, granted, for crude is off the highs seen recently.
The Feds dot plots suggest seven hikes this year, which is more than what was previously planned. Plus, the inversion of the yield curve suggests a recession is in the cards.
For now, let’s hope the market holds up or at least does not sell off too much. A little sideways trading will actually be good for the market.
If all else fails, it may be wise not to panic as we can see there is still a lot of “buy the dips” investors out there.
Source: CBOE, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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