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Stocks are easing back and Treasury yields are climbing sharply Wednesday after the Federal Reserve raised rates by 25 basis points.
The Nasdaq (COMP.IND) +1.4%, S&P (SP500) +0.7% and Dow (DJI) +0.3% are still higher, but have sold off since the Fed decision.
The quarter-point hike was expected, but the big shift in the Fed’s dot plot has yields shooting up, especially on the short end as the 2s-10s spread gaps down.
The 10-year Treasury yield is up 5 basis points to 2.21% and the 2-year is up 12 basis points to 1.98%. The 2-year was 1.15% at the last Fed meeting.
The Fed is now looking for at least six rate hikes in 2022, up from three in the last dot plot. The median rate at the end of 2022 is 1.9%, compared with 0.9% in December, with 2023 at 2.8%, up from 1.6% in December.
“I would put the Fed at a level of panic,” Guggenheim’s Scott Minerd said on Bloomberg. “That is, every piece of news that comes out we have this sort of rethink, the erratic nature of the dot plot.”
“I think they are in inflation panic and they’ve gone from transparency to ‘we have to be much much, more aggressive.'”
Stocks got a boost when the Financial Times reported that both sides are making progress on a 15-point plan that would see Russia withdraw and Ukraine accept neutrality and limits on its armed forces. But another report said Kyiv would not accept the neutrality demands.
Ukraine President Volodymyr Zelenskyy earlier appealed for more sanctions and a no-fly zone in a video address to Congress today.
On the data front, February retail sales rose a little less than expected.
“The headlines look disappointing but the upward revisions – headline and non-auto sales were revised up by 1.0%, with the control measure up +1.5% – were bigger than the shortfalls against the February consensus forecasts,” Ian Shepherdson at Pantheon Macro said.
“Stepping back from the noise, the first quarter is now on course for a near-12% annualized increase in the control measure – assuming no revisions to the February numbers and unchanged m/m sales in March – a bigger increase than we previously expected,” he added. “In Q3 and Q4 last year, control sales rose by 2.8% and 6.2%, respectively, so this is a clear acceleration. It probably cannot be sustained, but in the meantime you should expect to see upward revisions to forecasts for Q1 GDP growth.”
Among active stocks, China-related issues are rallying after a central bank pledge to keep capital markets stable.