Upcoming Fed Meeting will Determine Whether Can Stabilize or Revert to Bear market Lows.

Read Time:5 Minute, 2 Second

The Federal Reserve is anticipated to increase interest rates by another three-quarter percent on Wednesday. Still, the markets will influence the signals it sends on more rate increases.

The central bank’s two-day meeting on Tuesday and Wednesday takes place during a week in which markets will also be on high alert for new corporate earnings projections before the next reporting season in October. After FedEx pulled its full-year profits forecast on Thursday and warned about a worldwide slowdown in its delivery business, the market was alarmed.

As of Friday afternoon, the S&P 500 had fallen by more than 5.3%, reflecting the significant stock decline for the week.

Following the announcement of the consumer price index on Tuesday, which revealed that inflation was hotter and more widespread than anticipated in August, the mood on the stock market sharply deteriorated. The worst stock market day since June 2020 saw the Dow drop 1,276 points, or over 4%, as a multi-day rise abruptly ended.

Markets changed to reflect an even more aggressive Fed rate hike path following the CPI. This hastened the dramatic rise in shorter-term Treasury rates, and investors rushed to fixed-income assets due to yield levels not seen in 14 years.

According to Jack Ablin, chief investment officer at Cresset Capital, the front end of the yield curve at a 4% yield is an appealing option. “With both hands tied behind its back, the bond market has been vying for funds. It isn’t anymore.

Looking Forward to the Fed

There aren’t many data releases this week, but they’ll provide a critical glimpse into how the housing market has been faring under the Fed’s rate-hiking cycle. The data is anticipated to reflect a slowdown as mortgage rates increase. August housing starts on Tuesday, and existing house sales are on Wednesday.

Art Hogan, the chief investment strategist at National Securities, said: “The issue with it is that it’s a ‘heads I win, tails you lose.” We haven’t seen negative economic data benefit markets, but excellent financial data have historically hurt them. We might turn it off if the housing numbers show a significant enough decline. That would imply that the Fed’s rate increases are slowing the economy as anticipated, he added.

According to strategists, the Federal Reserve’s “interest rate prediction” on the dot plot will be the most crucial information for investors.

The terminal rate, or point at which the Fed stops raising interest rates, was markedly higher in the fed funds futures market after the CPI data. By April, it had a 4% terminal rate factored in.

The current upper bound is 4.50%, according to Ben Jeffery, a fixed income strategist at BMO. The dot plot, rather than the magnitude of the rate rise, may cause Wednesday’s possible shock. The market has also factored in a remote possibility of a 100 basis point increase, although most analysts anticipate the third rise of 75 basis points. [0.1% of a basis point]

The 2-year yield, which on Friday surpassed 3.9%, has the stock market “freaking out at every tick higher,” according to Hogan.

The 2-year is quickly-rising because it is, in his words, “essentially an indication of what we think the terminal rate is.” It’s incredibly challenging to operate in a market where positive economic data is terrible and negative data is also awful; the only thing we have to rely on is an increase in inflation readings. We fit into the area where it’s challenging to identify an encouraging catalyst shortly.

The PCE deflator, included in the personal consumption expenditure statistics, is the following critical inflation report and is expected on September 30. The Fed maintains a careful eye on that inflation indicator. The following CPI data is predicted for October 13.

Income and Risks

On Wednesday and Thursday, a few more companies will report profits this coming week, including General Mills, homebuilders KB Home, Lennar, and Costco.

According to Ablin, the ratio of weekly earnings upgrades to downgrades “is kind of stable.” Companies offer an open-ended invitation and every justification under the sun to lower expectations. Although a large portion is overseas, I believe that earnings will drop. China and Europe were the actual focus of the FedEx statement.

On Thursday, General Electric issued a similar caution about the potential impact of supply chain interruptions on its projected cash flow.

Ablin predicted that international corporations, particularly those with significant dollar exposure, would issue more warnings. As the value of the dollar rises, foreign sales lose value.

“Small caps still have a full weighing. He added that small caps and businesses that do most of their business locally ought to benefit from it.

The dollar index has been trading at a 20-year high, and although the euro and the dollar were trading at parity on Friday, it has since fallen below $1.

Ablin stated, “What I’m watching for is a rolling over of the dollar.” “Once investors begin to see the light at the end of the darkening tunnel, we’ll see the dollar roll over, and to me, it’s a sign that it’s safe to enter the equity market, and we’ll see foreign companies leading the way up.”

Technical Dynamics

Chart-tracking strategists have been intently watching the S&P 500 to see whether it falls below 3,800. That threshold could allow for a test of the

The final two weeks of September are often the worst for equities. The S&P 500’s weakest stretch is from late September to early October.

The unpleasant portion of September is now. The awful aspect is that Hogan stated. The good news is that the last two months of the year are typically strong since we are in a mid-term election season.

Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleepy
Sleepy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %
Previous post Gold Drops as US Jobs Data Maintains Hawkish Course for Fed
Next post <strong>What Are Personal Consumption Expenditures (PCE) and How Are They Measured?</strong>