Interest Hikes Have Already Been Priced In to the Market, Says the Fed

Markets show mixed price movements and uncertainty this morning, possibly looking for further clarification. The lack of economic releases has also undoubtedly contributed to this, but traders have been given clear indications from Mr Bullard’s interview. James Bullard, one of the senior members of the Federal Reserve, had made some vital statements regarding the economy, monetary policy and most importantly “pricing”.

According to Mr Bullard, the Fed is still planning to increase rates to 4.6%. The FOMC member was asked whether he believes that the monetary policy is working. Mr Bullard mentioned that interest rates do take time to “turn the ship”. But some effects, such as with the housing market, can already be seen, he added Lastly, the comment that caught most traders’ attention was “hikes have been priced in”. According to Mr Bullard, the pricing of equities and the US Dollar is accurate based on the current market conditions!

Elsewhere, one of the assets that did see a clear trend over the past 24 hours was crude oil. It managed to increase by just over 4.5% since Tuesday evening and has formed clear bullish impulse waves. The price was supported by crude oil inventories and technical elements boosting demand.

S&P 500

The S&P 500 has shown a slight decline measuring 1.40% over the past 24 hours, fully correcting previous day’s gains. However, when looking at timeframes that fall into the “swing trading” category, we can see that the price movement has only retraced back to the previous swing high (14th) so far. Therefore, this is still an ideal scenario for a bullish trend pattern based on Elliott Wave. However, traders should be cautious that the bearish price movement does not gain momentum.

When looking at indicators we can see that the 7-day and 17-day Moving Averages have crossed over downwards, indicating that the price will decline. Since the crossover, the price has declined by 1.47%, so traders need to be cautious about entering too late. The parabolic SAR is also giving a signal for a further decline so far but the price has found some support at the 55-day Moving Average. For a further downward trend, traders will be looking for the price to cross below the 55-day MA and break out of the $3,662 support level. To speculate long, traders will most likely aim for a breakout of $3,706.

SNP500 1-hour chart on October 20th

When looking at fundamentals and price influences, traders are concentrating on the latest earning reports. The latest earning reports came from Tesla and P&G. Tesla’s Earning Per Share was higher than expected, reaching $1.05. This is the highest we have seen over the past 4 quarters. The revenue, on the other hand, was lower than that expected. Elon Musk did try to calm fears of a global and Chinese recession. However, this could not stop the stock from declining 6.25% after the release.

Procter & Gamble, which is considered to be a defensive stock, held its value after the release of its earnings report. However, this year the stock price has not lived up to its reputation of weathering uncertain times better. The stock has declined by 20% but, of course, this is far less compared to some other large companies. For example, Tesla has declined by 45% and Amazon by 32%.

Procter & Gamble managed to beat expected earnings, but only by increasing prices while sales declined. The Earnings Per Share came in at $1.57 vs the expected $1.54 and revenue came in at $20.61 billion. However, the stock has only increased by 1.72% after its earnings report.

Earnings reports will continue to influence the price of the S&P500 but it is also important that traders concentrate on the market condition in general and its risk profile. If investor confidence declines further, it can potentially trigger more bearish price movements.

Quick Summary:

• Markets show uncertainty after comments made by FOMC member, Mr Bullard, who advised that the market is appropriately priced.
• Crude oil increases in value after crude oil inventories, rising by 4.5% since Tuesday.
• Tesla stocks decline again as the company misses revenue expectations and Musk attempts to calm markets.
• Procter and Gamble underperforms as a defensive stock, saved only by increasing the prices of its goods and services.