Morning Notes — Next

The 11am Fed policy statement was a bit more hawkish than expected, promising ‘ongoing increases in the target rate,’ while the updated dot plot suggests 11 rate hikes (including today’s 25bp hike) total in 2022 and 2023. The summary of projections included increased PCE forecasts in ’22, ’23 and ’24, keeping inflation above the Fed’s 2.5% target.  The press conference could provide more clarity on the balance sheet runoff, but the most important implication for equity markets will occur over the next several sessions as the event’s passing will remove some uncertainty discount.

SPX: The S&P 500 (SPX) remains in our ~4,100-4,300 support range as it looks to build a bottom. The two session rally reflects optimism for a diplomatic path to end the Russia/Ukraine war.  Importantly, progress in Russia/Ukraine talks also translates to dissipating realized volatility as the VIX index drifts below 30.  The passing of today’s Fed meeting could help ease volatility further with levels below 20 removing a headwind for equity markets.  We remain most constructive on value sectors with Ukraine optimism creating an opportunity to add Energy exposure at oversold levels (not there yet).  We expect higher real yields will keep Tech multiples constrained, while Banks should benefit once the yield curve resumes bear steepening in Q2.