'The party goes on': The Fed finally won over investors, and that should mean huge market gains ahead

Dion Rabouin, Axios

Feb 1, 2019, 01:31 IST

'The party goes on': The Fed finally won over investors, and that should mean huge market gains ahead

Carlos Barria/Reuters

On Thursday, as part of the Federal Reserve's latest monetary-policy decision, Jerome Powell gave investors what they've been wanting for a while: a pause in rate hikes.
Markets surged on the decision, and Wall Street experts say it could result in a risk-on environment that delivers big future returns.

Jerome Powell finally got the markets on his side. The S&P 500 fell after each of his first seven FOMC meetings as chairman (by far the longest on record), but the market jolted higher on Wednesday.

One big quote: "The big pivot in FOMC communication was not just the introduction of the word 'patient,' but also the removal of forward guidance explicitly signaling that the next change [will be a rate increase]," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

"This is all the more remarkable given that back in December, 15 FOMC members anticipated one or more hikes to be prudent in 2019. There certainly has been a change of heart in DC."

Bank of America-Merrill Lynch called it the "Dove Show."

Between the lines: Whether Wednesday was, in fact, a good day depended on who you asked and what they buy.

Dollar bulls got punched in the mouth, with the dollar index falling to its lowest in three weeks.
Bond traders saw opportunity, as the Treasury yield curve steepened with investors buying shorter-dated bonds. Fed fund futures show the market is pricing in no more rate hikes this year and almost the same likelihood of a rate cut as a rate hike by December.
Stock traders were giddy. The Dow jumped more than 400 points (Dow 25K!!!) and the Nasdaq gained 2.17%.

What's next? Scott Minerd, global chief investment officer at Guggenheim Partners, said the Fed's pause will allow excesses to continue to build and increase the risks of financial instability. But that's a good thing if you like to party.