“Investors have few spare tires left. Think of the image of a car on a bumpy road to an uncertain destination that has already used up its spare tire. The cash reserves of people have been eaten up by the recent market volatility.” – Mohamed A. El-Erian
So far 2016 has been a tough year for investors, with muted growth in the Euro zone, continual weakness in China, fluctuating commodity market prices and other global growth concerns being major worries hampering the U.S. stock market. These also restrained the Fed from going for a rate hike. The federal funds rate is therefore left untouched at 0.25% to 0.50% at least for now.
Though the policy makers hinted that they have adopted a cautious stance given the current situation prevailing in the broader economy, plans for a rate hike remain in the cards. Last December, the Fed had planned up to a four quarter-point rise in interest rate for 2016. However, the financial mayhem beyond the borders compelled it to retreat from its plan, and adopt a more steady and meticulous approach. Market pundits now expect two quarter-point rate hikes by the end of the year.
While the global markets are trying hard to make their way out of the woods, domestic investors welcomed the Fed’s decision, which to an extent calms the jitters that rose, when discouraging retail sales data for February and a downward revision to January retail sales point to some degree surfaced.
Oil Prices Hampering the Market
Declining oil prices – one of the major reasons that hampered the stock market in 2015 – have been witnessing a steady recovery from the late January lows, and have rallied nearly 45% to around the $40 per barrel mark. The prospects of the oil market remain somewhat bleak but there is a renewed hope for an output freeze that can put the derailed market back on track.
It is being speculated that at next month’s meeting in Doha, most of the major oil producing nations will agree to freeze crude production. However, doubts over the degree to which such a move would help reduce the supply glut remained, thereby eventually dragging oil prices southward on Monday.