Stocks and bonds take away different messsage from the Fed

Bonds and shares of financial companies didn’t like what they heard from the Federal Reserve Wednesday November 4 at 2:15.

Investors and traders in general, on the other hand, were relieved that the Federal Reserve signaled that interest rate policy wasn’t about to change and that any interest rate increase was still a long way off. That’s good news from that perspective because it means that borrowing a weak dollar at a very low interest rate in order to invest in higher returns in overseas markets or in U.S. commodity related stocks is going to stay very lucrative for a while longer yet.

And, of course, in general, lower interest rates are good for stocks since they reduce the attractiveness of investments in asset classes such as bonds or money market funds.

That’s why after selling off in the 10 minutes immediately after the Fed’s announcement, the Dow Jones Industrial Average rallied by 80 points in the next half hour.

Bonds, on the other hand, got slammed and stayed slammed. And as selling spread from bonds to financial shares that ate into the gains in the wider stock market. The Dow Jones Industrials finished the day up just 30 points.

What didn’t the bond market like? Read more