| Wednesday, September 16, 2020 Headlines 1. Fed to the rescue ... or not Market Moves U.S. equity markets ended mixed on Wednesday after the Federal Reserve announced that interest rates would remain unchanged near zero. After ending its two-day policy meeting of the Federal Open Market Committee (FOMC), the central bank indicated that rates would continue at the current level until inflation rises above 2% for "some time" so that it averages around 2% over time. A majority of FOMC members projected that interest rates would stay near zero through 2023.
Despite this rather dovish pronouncement that would typically give a boost to stocks, major markets fell to end the day in the red. Though both the S&P 500 and the Nasdaq Composite quickly surged on the FOMC announcement, both indexes gave back gains and fell further during the Fed's subsequent press conference. The S&P 500 dropped nearly half a percent while the Nasdaq Composite fell 1.25% to close the trading day. Gold also gave up gains as the day wore on. In contrast, managing to salvage a positive day were the Dow Jones Industrial Average (just barely) and the small-cap Russell 2000.
The roller coaster ride for the markets on Wednesday can be summed up with the intraday chart below of price action on the SPDR S&P 500 ETF, SPY. Here, you can see the pop on the Fed's announcement followed by a sharp drop to end the day. For many years, U.S. equity markets have been rescued by the Fed's consistently accommodative policy. This has been even more the case during the current pandemic, when the Fed's intervention has helped buoy markets to new highs. With the current market dip, especially in the case of tech stocks, times may be changing.  Gold May Glitter Again Gold prices were initially looking bullish on Wednesday before fizzling out after the Fed's announcement. Like stocks, gold often receives a boost whenever the Fed indicates lower interest rates for longer. This is largely due to gold being a non-interest-bearing asset—when interest rates are low, gold is typically seen as more attractive despite being a non-yielding investment, whereas a higher interest rate environment can put a tarnish on gold's appeal when compared with higher-yielding investments.
Taking a longer-term look at the precious metal (chart below), the Fed's lower interest rate policies along with gold's appeal as a safe-haven investment and the drop in the U.S. dollar's value in the past several months have all helped to push gold to progressively higher peaks since the drop in March. This has resulted in a well defined uptrend line extending back to March. This trend line can be seen as a key support zone for the still-prevailing uptrend in gold. With upcoming risk events (including the November U.S. presidential election), along with the continuing economic consequences of the pandemic and near-zero interest rates for the foreseeable future, gold likely has some tailwinds to keep prices afloat. Barring any clear breakdown below the trend line, the precious metal may have further to rise after the recent dip. 
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Apple Dipping Speaking of dips, shares of Apple Inc. (AAPL) have dropped around 19% since the early-September, split-adjusted highs. By definition, this nearly constitutes a "bear market" drop of 20% for the bellwether stock. The substantial drag on AAPL has occurred despite its highly touted 4-for-1 split in late August and its eagerly anticipated annual event held yesterday. Where does Apple stock go from here? Much will depend on whether the tech stock rout continues, as well as on the upcoming debut of the new iPhone slated for next month.
From a technical perspective, as shown on the chart below, AAPL is on the cusp of a minor uptrend line extending back to the late-July dip. But even if that trend line is broken down, the stock is still significantly above a major uptrend line extending back to the late-March lows. Typically, when Apple stock undergoes deep retracements/corrections, subsequent rebounds are often strong and sustained. If AAPL can maintain the trend line(s), it could very well be poised for a substantial bounce. Any robust breakdown, though, could signify more pain ahead for investors.  The Bottom Line The Fed's continued "lower-for-longer" interest rate announcement on Wednesday initially boosted stocks and gold, but the surge wouldn't last the day. Tech stocks, including Apple, have especially been weighed down of late. A strong rebound for Apple could be in the cards, but the stock is nearing key support trend lines to the downside, and may continue to be pressured if the trend lines break. Finally, gold may be poised to rise again as risks on the horizon and low interest rates may continue to boost the precious metal. PODCAST ALERT! The latest episode of The Investopedia Express is LIVE. Investopedia's Editor in Chief, Caleb Silver digs into the most important stories in finance and global economics. On this week's podcast:
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Wednesday, September 16, 2020
Mind the Dip
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