Market Update: Stock-Rally Fizzles on Hawkish Fed; Cryptos Stabilize After Tumultuous Five Days

U.S. stocks shed gains Wednesday after the Federal Reserve delivered its first interest-rate hike under Jerome Powell and signaled the continuation of policy tightening throughout the year. On the cryptocurrency front, markets stabilized after a volatile five-day stretch, with bitcoin holding near $8,900.

Fed Stays the Course

The Federal Reserve raised its benchmark interest rate to 1.75% from 1.5% on Wednesday as part of a broader initiative to normalize monetary policy. The verdict gave a clear signal that rates will continue to rise throughout the year, with officials forecasting a steeper path in 2019 and 2020.

“The economic outlook has strengthened in recent months,” the Federal Open Market Committee (FOMC) said in a statement Wednesday. Officials also said they anticipate “further gradual adjustments in the stance of monetary policy.”

Officials gave a favorable view of the economy and labor market, commenting on the strong pace of hiring in recent months.

However, not everyone is convinced the Fed will be able to maintain such an assertive course. The Atlanta Fed’s GDP tracker is forecasting economic growth of just 1.9% year-over-year in the first quarter, down from a prior estimate of 5.4%. Another big concern is how consumers will react to rising interest rates. Indebted households have restricted their spending in recent months, as evidenced by retail sales data. Higher interest rates will make it costlier to service those debts.

Stocks Whipsaw After Fed

U.S. stocks opened in positive territory and traded higher for most of the day, with markets giving a favorable first read of the FOMC statement because it made no mention of a fourth rate increase this year.

All the major indexes declined on Wednesday. The large-cap S&P 500 Index fell 0.2% to 2,711.93, with seven of 11 sectors finishing lower. The index had gained as much as 0.8% earlier.

The Dow Jones Industrial Average declined 44.96 points, or 0.2%, to close at 24,682.31. Meanwhile, the Nasdaq Composite Index shed 0.3% to close at 7,345.29.

The CBOE VIX fear index fell slightly on Wednesday, closing down nearly 2%% at 17.86. Vol touched a session low of 16.26 on a range between 1 and 100.

Cryptocurrencies Flat

When viewed collectively, the crypto market was little changed on Wednesday, with total values hovering near $345 billion. Movement within the top-five was narrow by the afternoon, with bitcoin, Ethereum and Litecoin holding steady, according to data provider CoinMarketCap.

However, there was sharp divergence beyond the top-five, with Cardano and EOS rising more than 7% apiece. ICON was the biggest percentage gainer after South Korea’s Bithumb exchange announced it has added the cryptocurrency to its listing.

On the opposite side of the spectrum, Stellar, NEM and Ripple XRP struggled in mid-week trading.

Bitcoin’s dominance index weakened slightly on Wednesday but continued to hold near 44% of the market. The world’s biggest cryptocurrency hit a high above $9,000 on Tuesday but has since consolidated below that level.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.


Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi