Different market segments took cues from different portions of the FOMC (Federal Open Market Committee) statement.
Equities reacted negatively to the FOMC statement. The iShares Core S&P 500 ETF (IVV) and the SPDR Dow Jones Industrial Average ETF Trust (DIA) track the S&P 500 and the Dow Jones Industrial Average (or DJIA), respectively. The former fell 1.3%, while the latter fell 1.1% at closing on January 28, 2015. Equities expected the Fed to hike rates this year, reading the statement as more hawkish, given the Fed’s strong take on the economy and the jobs market.
Treasuries jumped and closed higher after the Fed’s statement. Yield on the three-year Treasury note fell by 6 basis points (or bps) on January 28 from a day ago. The iShares Barclays 1–3 Year Treasury Bond Fund (SHY), which tracks this segment rose ~0.1% for the day.
Longer-term Treasuries reacted much more strongly to the statement. Yield on the ten-year Treasury note fell 10 bps to 1.73% on January 28. Meanwhile, the 30-year bond yield fell 11 bps from the previous day. The iShares Barclays 20+ Year Treasury Bond Fund (TLT), which tracks this segment, jumped 1.6% on the day.
Treasuries focused on the Fed’s continued “patient” stance on raising the interest rate, which will keep them attractive for longer.
The US dollar continued to rise amid a slowing global economy. The political situation in Greece added to its safe-haven appeal. You can read more about the recent election results in Greece in our series Beyond austerity: What change in Greece means for the Eurozone. The PowerShares DB US Dollar Index Bullish Fund (UUP) rose 0.6% at the end of the trading day on January 28.
With the FOMC, the only central bank considering raising the interest rate this year, the dollar remained strong against its peers.
In the final article of this series, we’ll look at some other details from the statement and what the Fed will look for going forward.