Stocks rallied sharply, the U.S. dollar corrected and oil prices rebounded following the Federal Reserve's meeting this week.
As expected, the Federal Reserve removed "patient" from its policy statement, but Chairman Janet Yellen went on to say the Fed won't be impatient. In other words, the language change frees the Fed from its self-imposed restraint caused by the word. However, uncertainty still exists. Rates could go up as soon as June, or rates could stay the same for several more months. The market viewed the Fed's adjustment as slightly dovish, and expectations about the timing of the first rate hike shifted towards the autumn.
While the Fed has increased its options, it repeated that its policies are data dependent. Currently, that data is delivering a mixed picture due to weak economic growth. The Atlanta Fed now forecasts GDP growth will be 0.3 percent in the first quarter. The global economy is struggling due to the slowing Chinese economy, which weighs on growth across emerging markets and developed countries such as Australia.
Manufacturing is a leading indicator, perhaps the most important, and it has been slowing. This week both the Empire State index and Philly Fed reported slowdowns in manufacturing, though it is still expanding, signaling better growth in future quarters.
Inflation is running hot at the moment. We watch MIT's Billion Price Project and monthly inflation in early March is the highest in 2 years. The consumer price index (NYSEARCA:CPI) is still below 2014 levels due to the drop in oil, but overall prices are rising at a rate that is faster than the Federal Reserve's target of an annualized 2 percent, were it to hold.
Despite some negative news, the Fed has already hit its self-determined employment target and employment trends are positive. Jobless claims were basically in line with expectations last week. This continues to be a very strong signal for the domestic economy.
If the pattern from 2014 holds, growth will tick up, inflation will rise and employment will be strong. The Fed could hike rates as early as June under this optimistic scenario. If growth is more muddled, the Fed will find an excuse to delay rate increases, and should the economy weaken further, rate hikes will obviously be off the table.
The Fed's policy statement had a huge impact in the markets. In the currency market, the long awaited correction in the U.S. dollar arrived. The euro and many emerging market currencies rebounded sharply as the dollar tumbled. The dollar remains in a bull market, but we should see significant consolidation before it moves higher again. Energy and gold prices also pushed higher following the Fed's statement.
The two strongest sectors in the market this week were healthcare and utilities. Healthcare received a boost from a jump in biotechnology. Through midday trading today, SPDR Biotech (NYSEARCA:XBI) is sitting on gains of approximately 5 percent for the week, while pharmaceutical funds were up about 4 percent. Shares of Biogen (NASDAQ:BIIB) are pulling the sector higher today following positive results for an Alzheimer's drug.
Utilities funds are looking to close the week with gains above 2 percent, aided by the market pushing back rate hike expectations. The rate sensitive real estate sector rallied slightly more. Financials were hurt by the Fed statement and were trading flat on the week.
Homebuilder stocks also benefited. Shares were hit by negative news early in the week, with housing starts off sharply in February even in areas of the country that didn't suffer from bad weather. Shares have ticked up since then and sector funds could finish the week near their 52-week highs.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.