Okay, well this is one of those major days in the markets. I’m not making predictions on today’s price action. Who knows how the markets will react before and after the Fed moves? No, it’s a big day because there’s a lot of anticipation regarding changes In the Federal Reserve’s plan to combat inflation.
It appears likely they’ll hike rates at least 3/4% but they may go further and raise a full percentage point. Either way, it won’t matter as much as what they indicate will be their path of future hikes, both what they write down on paper as well as comments from Chairman Jerome Powell afterwards.
There’s always a lot of chatter around every Fed policy meeting. But, the environment now is heightened after inflation last week proved it was not yet in retreat.
So, now you have a set up where despite higher prices, the consumer is still spending. Taking on more debt, but still spending.¹ Consumer sentiment is the lowest the University of Michigan has ever surveyed (going back to the 70s). The strong dollar is weakening global trade and expected to hurt profits for some U.S. companies.
And while the stock market has been relatively orderly in its selloffs, the bond market has been a mess. We’re seeing yield curve inversions and massive moves on some typically benign securities like short-term treasuries. I’m talking stuff that never gets anyone all that excited.
All of this points to slowing growth and fears of a recession. That’s a set up which should argue for rate cuts, not hikes. And, it would if only there wasn’t that nagging little pest called inflation.
At 2pm we’ll see the Fed’s latest path to reigning it in while keeping the wheels on the track.
Market strategy excites us. But, if you’d rather be out fishing, golfing or practicing yoga instead of figuring out how you should position your portfolio, reach out.
We can discuss while you’ve got a rod or a club in hand. Though it’d probably be best to wait until your yoga session is over.
¹ Yardeni Research
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The Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 actively traded blue chip stocks. Indexes are unmanaged and do not incur management fees, costs or expenses. It is not possible to invest directly in an index.
A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.