Fed was dovish as expected. Now, to take profit

THE Federal Reserve has delayed hiking rates, but don't get too happy - there is limited upside in equities from here.

In the end, things played out as we expected, which was that the "risk rally would likely be supported by dovish Fed". Indeed, this was the continuation of the technical rebound we predicted in the last week of August, but this same rally is likely to be in its final phase.

Although the economists were evenly split on the decision, the market was clear the Fed wouldn't raise the rates this time. The Fed Funds Futures market assigned 28 per cent probability at the start of the week, and ended at 32 per cent just before the meeting. So the market has been pricing in this outcome the entire week, with stocks pushing higher, the US dollar index DXY weakening, emerging-market equities rebounding, Asian currencies enjoying some respite from decline and the AUD/USD getting a little lift within a broader downtrend.