Equities Rise Sharply on the FOMC’s March 2015 statement
The Fed's ‘Patience’ Is Gone, but Will Things Change from Here? (Part 9 of 9)
Equities rose sharply
Equities reacted positively to the Federal Reserve’s March 2015 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 rose 1.2% while the latter gained 1.3% at closing on March 18, 2015.
Though the FOMC (Federal Open Market Committee) dropped its “patient” stance and opened the door to a possible June hike, the statement was dovish in tone. With the FOMC waiting for the labor market to improve further, the conditions will remain accommodative. These accommodative conditions had fueled the stock markets in earlier years. So, they took solace from the dovish stance.
Treasuries rose
Treasuries also reacted positively to the FOMC’s largely dovish stance. Yields fell across the curve, with the fall most pronounced in the two-to-ten-year segment of the yield curve. The fall in that tenor ranged from 13 to 15 basis points. Yields and prices in fixed-income products are inversely related, so prices rose for the day. A rate hike is negative for bonds, as interest rates push yields higher, driving prices down. So, a dovish stance helped Treasuries and bonds.
Yield on the three-year Treasury note fell by 15 basis points (or bps) on March 18 from a day ago. The iShares Barclays 1-3 Year Treasury Bond Fund (SHY), which tracks this segment, rose 0.2% for the day.
Meanwhile, yield on the 20-year Treasury bond fell nine bps on March 18, while the yield on the 30-year bond fell ten bps from the previous day. The iShares Barclays 20+ Year Treasury Bond Fund (TLT), which tracks this segment, jumped 1.9% on the day.
The dollar tanked
The US dollar tanked against its major peers, ending down over 2% against the euro on March 18 from a day before, after the FOMC statement came across as dovish, even though “patience” was dropped from the language. The downward revision in economic growth forecasts and a more gradual approach to interest rate normalization hurt the greenback. The PowerShares DB US Dollar Index Bullish Fund (UUP) fell 2.0% on March 18 from a day ago—the sharpest movement among all five ETFs in this analysis.
Energy-related stocks like Chevron (CVX), ConocoPhillips (COP), and ExxonMobil (XOM) were the biggest gainers of March 18 as crude oil prices rose due to the falling dollar. These stocks rose 3.4%, 2.6%, and 2.4%, respectively.
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