US Fed meet outcome today: Here’s how D-Street behaved in the past; what’s likely this time?

In the US, benchmark indices hit fresh 1-year highs on Tuesday as the conviction of a pause in rate hike by the Fed strengthened after data showed that consumer price inflation rose at a slower-than-expected pace in May.

The CPI index rose 0.1% last month, which is the smallest annual increase in inflation that the country has seen in more than two years.

That the conviction has strengthened is clear as the CME Fedwatch tool showed there is about 94% probability of the central bank leaving its target range unchanged at 5.00-5.25%, compared to 82% a day ago.

The steady fall in inflation in the country reflects the impact of the relentless hikes in interest rates that the economy saw in the last 15 months.

A likely pause by the Fed has already been factored in by markets across the globe. Therefore, the rate action may not move the market much, but the outlook for rate trajectory in the ensuing months will be pivotal.

While the Fed is expected to keep rates steady, an unexpected hike by the Reserve Bank of Australia and the Bank of Canada last week suggests that the rate tightening cycle is yet to reach the end of the road. Back home, benchmark indices have gradually inched higher and are trading closer to their lifetime highs.

The chances of the Sensex and Nifty50 hitting fresh all time highs hinges upon Fed Chairman Jerome Powell’s outlook on rates for the rest of the year.

How Sensex performed post Fed outcome?
A look at the performance of domestic markets a day after the Fed’s policy action in the last 1 year showed that Sensex has given negative returns majority of times.

After the May meeting, even as the Fed indicated that interest rate hikes are likely nearing peak, the Sensex fell over 1%.

Indices have been in a consolidation phase in the last few sessions, though are steadily inching higher.

Fed’s commentary on future rate movement could result in a directional move for the market, believe analysts.

The relentless buying by foreign investors has helped markets clock steady gains, with the Sensex and Nifty 50 inching closer to their lifetime highs.

“Despite Nifty being within touching distance of its record peak, only 52.6% of NSE 500 stocks are above their December peaks. This suggests that the broad based market is still far from overheating, and has good room for upside,” said Anand James, chief market strategist at Geojit Financial Services.

Technical analysts too, are bullish on the market as the near-term trajectory is positive.

“The near term trend of the market remains positive. One may expect Nifty to move above the hurdle of 18800-18900 levels in the next few sessions,” said Nagaraj Shetti, technical analyst at HDFC Securities.

Will the Fed uplift Dalal Street bulls’ mood further or become a party spoiler? One needs to wait for a few more hours to know it…

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)