All eyes were on the Federal Reserve yesterday, and boy, did Wall Street knee-jerk react to the Federal Open Market Committee (FOMC) statement.
As expected, the FOMC unanimously voted to raise key interest rates by 25 basis points. The Fed funds rate is now at 2.25% to 2.50%, which is the highest level since 2008. But what was more shocking was the Fed’s announcement that it would raise key interest rates two more times in 2019.
While that’s down from the three interest rate increases forecast back in September, Wall Street and I were looking for the Fed to pause raising rates in 2019. So, I was disappointed that we didn’t receive a more dovish statement.
In addition, the statement stated, “The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.” The key difference was adding the words “some” and “judges” rate increases instead of the “expects” in November.
Interestingly, global economic growth is slowing and inflation is fizzling, so there’s some flaws in the FOMC’s reasoning for more rate hikes in the New Year. In fact, there are a lot of reasons to not raise rates next year – a currency crisis in Britain and Europe, protests in France, the negative GDP growth in Germany, China’s slowing economy and more.
Plus, the U.S. continues to serve as an oasis. Considering all the aforementioned chaos around the world, international capital is pouring into the U.S. And all this foreign money is driving our Treasury yields lower. The 10-year Treasury now sits near 2.8%. And typically, the Fed does not fight market rates.
As Wall Street digested the FOMC decisions and Fed Chair Jerome Powell’s comments, the selloff from yesterday continued into today. Folks, the selling is overdone. The stock market is grossly oversold at this point. So, once investors have had a little time to wrap their heads around the Fed’s moves, we should see the broader indices rebound.
In the meantime, I continue to believe that pullbacks represent strong buying opportunities. If you’re looking to put your money to work today, I recommend looking at dividend growth stocks. As I discussed last week, I expect them to lead the stock market recovery in the coming weeks. In case you missed it, you can catch up on the three dividend plays that I believe are great spots to park your money here.