Major indices dropped for the second day thanks to the Federal Reserve.
In fact, at midday, the Dow Jones was down 156 points. The NASDAQ fell 23. And the S&P 500 was down as much as 10 points on the day.
All thanks to comments from the central bank’s Jerome Powell, who noted that low inflationary pressures were likely to be “transitory,” suggesting that a rate cut may not be coming at all. Those comments followed the Fed’s decision to leave rates unchanged on lackluster inflation.
In other words, Powell took away any hopes for an early rate cut, as he expects for inflation to pick up steam again.
“I think investors need to get into their heads that the period of low inflation, low interest rates and monetary policy continuing to provide nothing but stimulus is over,” Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs, told CNBC. ” “Markets instead should be looking at the economy and profits. It’s a good picture and one we think makes sense.”
However, the Fed news isn’t the only reason stocks have turned lower.
U.S. and China Trade Talks May Have Hit a Snag
According to Outlook India, as noted by Zero Hedge, trade talks may have hit a snag.
The article quoted a senior Chinese government official who believes the White House’s “vague” statement following the close of trade talks suggested that the talks are getting “more difficult.”
“This is very vague and shows that some tough issues still have to be discussed,” said Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies.
Volatility Begins to Tick Higher
Investors are clearly nervous over the Fed’s latest comments, and a possible impasse between the world’s two economic superpowers.
In fact, we can see that with the VIX, the market’s fear gauge.
After remaining relatively flat for weeks, the VIX just ran from 12 to 15.58. Unless we see cooler heads prevail, we could see higher highs on the VIX in weeks. As the VIX turns higher, some investors are seeking safety in the VelocityShares Daily 2x VIX Short Term ETN (TVIX) and the ProShares Ultra VIX Short-Term Futures ETF (UVXY).