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The Trader: Hunt for growth and quality in the wake of Fed meeting

Market movements in the wake of the Federal Reserve meeting earlier in the week are hard to judge
The Trader: Hunt for growth and quality in the wake of Fed meeting
  • US stocks higher, lead by tech and growth stocks on Nasdaq
  • Commodities slip 
  • Tesco faces tough comparators

How do you trade the Fed? Not easily, is the simple answer. US has ripped higher as the Fed signalled it won’t let inflation run riot, but bonds have been pretty steady – 10yr yields have slipped back under 1.48 per cent. Stocks have come off their record highs since the Wednesday meeting, but yesterday the Nasdaq Composite – composed of tech and growth companies that ought to do less well in a rising rate environment - gained 0.87 per cent. That may be because investors are retreating to a form of quality right now. NDX rose 1.3 per cent as the mega tech names enjoyed solid gains. The broader market was weaker with small caps down 1 per cent, commodities slipped with palladium down 10 per cent, platinum -7 per cent, oil lower and the dollar was bid up to its best day in over a year.

European indices saw a mixed start to the session on Friday but have mostly turned red as investors dial down their risk in the wake of the Fed’s slightly hawkish meeting. What the Fed’s meeting also told us was that once inflation expectations become unanchored, it’s a tough job to re-anchor them. I continue to envisage higher yields by the end of the year but the Bank of America Flow Show report today stresses that cyclicals face a “perfect storm”, with “excess positioning, China tightening, US fiscal hopes fading, and now hawkish Fed” combining against them.  Metals are a tad firmer this morning after steep losses Thursday, but copper is still roughly 14 per cent off its recent peak and set for its worst week in 15 months. A combination of a tighter Fed and China’s efforts to lower prices have worked. Gold is also set for its steepest weekly loss in more than a year as a stronger dollar and Fed’s hit job on inflation works its way through some stretched speculative longs.

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