The Federal Reserve issues its next interest rate decision at 2:00 p.m. EDT on Wednesday, followed by Jerome Powell's news conference at 2:30 p.m. Market reactions tend to come in two waves in this type of scenario, with the chairman's comments often triggering bigger moves than the formal statement. That should happen this time around as well, due to relentless pressure on the Fed by President Trump.
Powell and Co. are unlikely to fulfill Trump's desire for a deep cut, with a 25-basis-point consensus likely to be fulfilled, so it's wise to look for a third reaction after the president's inevitable tweet storm. Market players have discounted these shoot-from-the-hip statements in recent months, but the president could raise the stakes with renewed threats to toss the Fed chairman out of office. Prior comments in this regard have triggered swift sell-the-news reactions.
Make sure to put gold and the bond market on your trading screens ahead of the decision to gauge the market reaction beyond the Dow Jones Industrial Average and a few equity benchmarks. Any number that falls outside consensus should trigger greater-than-expected movement in these venues due to the impact on inflationary expectations. The banking sector's reaction will also provide useful feedback, with shrinking rates cutting into the industry's profits.
The SPDR Gold Shares (GLD) has stalled at the 50% retracement of the 2011 into 2015 downtrend, just below the 2013 breakdown through a descending triangle top near $150. Bullish news could trigger a final buying spike into the black line, but lower prices are likely in the coming weeks as the instrument works off an overbought technical condition. A multi-week slide that reaches the red line and 50-month exponential moving average (EMA) between $125 and $130 could offer a historic buying opportunity in this price structure, ahead of continued gains that eventually reach the all-time high.
The iShares 20+ Year Treasury Bond ETF (TLT) went vertical after the 2008 economic collapse, posting a new high at $123, and settled near the 50-month EMA a few months later. It posted nominal new highs in 2012, 2015, and 2016, carving a shallow rising trendline that's still in play three year later. The most recent bond rally stalled with two points of this resistance level in August, predicting another steep downturn.
However, there's a little wiggle room here because the fund didn't reach the trendline, so a final buying spike above $150 is possible before bears take control of the ticker tape. A greater-than-expected rate cut might do the trick, while a consensus print is likely to generate a sell-the-news reaction that dumps the fund to a monthly low. Ominously for bond bulls, there's little support on the downside until a decline reaches the $120s.
The SPDR S&P Bank ETF (KBE) hit an all-time low in the single digits in 2009 and bounced strongly, posting intermediate highs in 2010, 2015, and 2018. A line stretched across those peaks forms a trendline that was broken to the upside after the 2016 presidential election. The fund tested new support in 2017 and turned higher, topping out just above $50 in January 2018 after President Trump fired the first shot in the trade war.
The sell-off into December 2018 broke the trendline, while 2019 price action has crisscrossed the contested level multiple times, neither resuming the breakout nor confirming the breakdown. This standoff is likely to end in the coming months, but it's impossible to pick the winning side at this juncture because technicals are evenly weighted between bulls and bears. A breakout above the blue line near $44 after the rate decision could presage better times and a trip back to the upper $40s, while a sell-off through the August low is needed for bears to take control of the tape.
The Bottom Line
Price action in these interest rate-sensitive markets after the Fed decision could provide actionable feedback for risk-conscious market players.
Disclosure: The author held no positions in the aforementioned securities or their derivatives at the time of publication.