When the Federal Reserve raised interest rates by only 25 basis points, markets already expected it. This led to a monstrous rally. Nasdaq (QQQ) rose by 8.35%, erasing weeks of over-selling. The Fed’s weak move is a gift to the markets.
Inflation is uncontrollable. The central bank is months behind raising rates. Any decisive action would have sent overpriced technology stocks to new lows. Instead, fintech firms rebounded. Block rose by 38% for the week to $140.64. PayPal (PYPL), whose growth is slowing, added 23% for the week.
The technical rally in SQ and PYPL stock will need a break-out above the moving averages. Nothing fundamentally improved for either firm. Speculators are simply assigning higher price-to-sales multiples to those widely held firms.
Hyper-growth Economy
The small rate adjustment will allow the economy to expand further. The economic expansion will spur higher transaction volumes in the month ahead. Even as the Fed raises rates again in June, markets may trade to the upside for months. Momentum investors have enough enthusiasm to take SQ and PYPL stock on an uptrend. Short-sellers, who have an 11.6% short float against SQ stock, will feel pressured to close the position. SQ stock has more upside potential than PYPL for now.