The last few days on the financial markets have been extremely dynamic, and the recent meeting of the U.S. Federal Reserve has only added food for analysis. I am your guide through the turbulent waves of the financial ocean, and now we will discuss what happened and why it is important for all of us.
So, the intrigue around the rates has been resolved predictably: the Fed kept them at the same level, with no sharp movements. It seems to be a reason for stability, but the head of the Federal Reserve, Mr. Powell, made a speech that sounded more cautious than optimistic. He pointed directly to increased risks for both inflation (and there are reasons for concern, such as significantly rising labor costs in the first quarter and declining productivity) and the labor market. Moreover, a clear signal was given: do not expect a 'preemptive' rate cut just to hedge against possible economic shocks due to trade disputes. It would seem that such a 'signal of uncertainty' should have made the markets nervous, but the opposite happened.
On Thursday, American stocks soared sharply, with the S&P 500 and Nasdaq 100 each gaining more than one and a half percent, recovering losses from the previous day and reaching highs not seen since March. The Dow Jones even jumped over 600 points. What caused the markets to rise so dramatically, despite the rather restrained comments from the Fed? The answer lies not in the central bank offices, but on the international trade arena. The main catalyst was the announcement of a trade deal between the U.S. and the U.K., which was perceived as the first step towards reducing global tensions. And when the president hinted at a possible easing of tariffs on China ahead of upcoming negotiations, it triggered a real wave of optimism. The markets immediately switched to 'risk-on' mode, actively buying stocks, especially in sectors that benefit from international trade, such as technology (hello, Tesla, Apple, Alphabet, Nvidia, Meta, Amazon!), consumer goods, energy, and telecommunications. At the same time, some sectors, such as healthcare, showed relative underperformance.
The dollar, by the way, also did not remain on the sidelines and strengthened for the second consecutive day, breaking above the 100 mark on the index. As noted, this growth was also fueled by optimism regarding trade deals, rather than a direct reaction to the Fed's meeting, whose decisions had already, in essence, been priced in. The economic data released around the same time – rising labor costs, declining productivity in the first quarter, but at the same time a slight decrease in jobless claims – adds complexity to the overall picture, confirming the Fed's caution regarding risks to inflation and employment, but they could not overshadow the powerful positive signal from trade news.
So, in the end, we see an interesting picture: the Fed is acting predictably, maintaining a course for stable rates and highlighting risks, but the markets found a much stronger reason for movement in progress on the trade front. This shows how significantly external, geopolitical factors can influence investor sentiment and outweigh signals from monetary policy if those signals are already expected. The market is currently actively reassessing risks and opportunities, focusing on news about what the global trade landscape will look like in the near future.