1. The Fed Didn’t Move Rates, But the Message Changed
The Federal Reserve didn’t cut rates or raise rates yesterday.
However, there was one key takeaway: the next move could be a rate hike rather than a rate cut.
That’s where things get interesting—and potentially problematic.
Many investors assumed the new Fed leadership would be more dovish and lean toward cuts or, at the very least, keeping rates unchanged. Now, if rates move higher, a number of existing problems could become even worse.
We already know the private credit market is showing signs of stress. Higher rates could increase that pressure. We also know American consumers remain pessimistic. If borrowing costs rise further, will they spend less?
Meanwhile, the U.S. housing market is already facing headwinds, including accidental landlords and affordability issues. Higher rates would likely add to those challenges.
Right now, there are far more questions than answers.
2. The Real Market Reaction Starts Now
Historically, the market’s initial reaction to a Fed announcement or press conference is often wrong. The real trend tends to reveal itself on Thursday and Friday.
That makes today and tomorrow especially important.
Looking at the S&P 500, the key level we’re watching is the 50-day moving average. If that breaks, additional selling pressure will likely follow. There are also several unfilled gaps on the chart that could still get filled.
As for the Dow Jones Industrial Average, yesterday’s action was particularly interesting. The index made a new all-time high earlier in the day, and then reversed sharply lower in afternoon.
That’s a significant technical development worth paying attention to.
3. Oil’s Risk Premium Continues to Evaporate
The United States and Iran have now signed a memorandum of understanding electronically. Keep in mind that Iran has emerged as a very clear regional power.
The Strait of Hormuz is expected to reopen quickly, and the U.S. blockade is ending.
As a result, the oil market continues to remove the geopolitical risk premium. WTI crude is now trading around $74 per barrel, and we’re hearing increasing expectations that supply could normalize by July.
If you’re watching oil, focus on the supply side. Our assumption is that GCC countries will ramp up production and exports rapidly. Add Iranian oil returning to the market, and the supply picture can change considerably.
One additional question: with the UAE now outside OPEC, could we eventually see the beginnings of a price-war environment?
4. Gold Is Trapped Between Support and Resistance
Gold appears to have formed a near-term double top just below $4,400.
On the downside, $4,100 remains a very important support level.
On the upside, gold still has several hurdles to clear.
Above $4,400 sits the 200-day moving average, followed by the 50-day moving average.
While there has been a lot of good news for gold over the past year, the current news flow isn’t particularly supportive. If the market continues talking about potential rate hikes, does gold lose more ground?
As for silver: it has slipped back below its 200-day moving average again. Consistent closes below $65 would place the metal in a dangerous territory.
5. Bond Markets, Bitcoin & a Warning for Investors
Despite the Fed’s tougher rhetoric, bond yields aren’t reacting aggressively. That’s important.
Remember, the bond market often has more influence than the Federal Reserve itself.
Bitcoin continues to slide.
Meanwhile, as expected, the Canadian dollar is moving lower against the U.S. dollar. If the 0.70 level breaks, things could become much uglier for the loonie.
One final observation: Apple is raising prices due to a memory-chip supply crunch.
That further confirms what we’ve been hearing for months: there is still a shortage of memory chips, and related stocks are likely going to react accordingly. But don’t forget the most important rule: always keep your risk and reward in mind.