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All Eyes on Fed Rate Decision: Key Stocks to Watch
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The Federal Open Market Committee (FOMC) is widely expected to pull the trigger on another 25-basis point (0.25%) rate hike today. But given three of the largest U.S. bank failures in recent months, will the Fed stay the course?
Current odds are showing a roughly 85% chance of a hike today, versus about a 15% chance of a pause:
Image Source: CME Group
Inflation – A Thorn in the Fed’s Side
Coming into today’s widely anticipated rate hike, the Federal Funds Rate was at an upper bound of 5%. The most recent Consumer Price Index (CPI) data from March shows prices increased at a 5% clip year-over-year. Keep in mind that the data is lagging, but it appears with today’s hike the Federal Funds Rate will be above the CPI – a necessary ingredient that has preceded the end of the past eight tightening cycles. This adds credence to the view that a potential hike later this afternoon may be the final push, culminating in the end of this current hiking cycle.
Image Source: Zacks Investment Research
Last week, the U.S. Bureau of Economic Analysis (BEA) conveyed the latest Personal Consumption Expenditure (PCE) inflation data from March, which was mainly in line with the consensus of a slight cooling. The PCE index reflects changes in the prices of goods and services purchased by consumers.
The headline figure decelerated to 4.2% year-over-year, substantially lower than the 5.1% reading in February. A monthly rise of just 0.1% was the softest dating back to July 2022. Energy prices declined 3.7% on the month, while food prices dropped 0.2%, relieving households of at least some pressure.
Core PCE, which strips out the more volatile food and energy components and is the Fed’s preferred inflation gauge, came in at 4.6% - just above estimates, but a tad lower than the 4.7% from February.
Regional Banking Fiasco
Markets have stumbled heading into Wednesday’s Fed announcement, closing lower the first two trading days of May. The recent regional banking turmoil resumed, with the SPDR S&P Regional Banking ETF (KRE - Free Report) shedding 6% during Tuesday’s session. Shares of PacWest Bancorp plunged over 27%, while Western Alliance (WAL - Free Report) sank 15%.
The volatility came on the heels of yet another major bank failure this year, as regulators took possession of San Francisco-based First Republic Bank early Monday. First Republic marked the third failure of an American bank after the collapse of Silicon Valley Bank and Signature Bank in March. Three of the four largest bank failures in U.S. history have occurred in the last two months.
The bulk of First Republic’s business was sold to JPMorgan Chase (JPM - Free Report) , who assumed $92 billion of First Republic’s insured and uninsured deposits. JPMorgan also purchased the majority of the bank’s assets.
Regional bank shares are attempting to stabilize on Wednesday ahead of the Fed announcement, with the KRE ETF up better than 2% in early trading.
Stocks to Watch
Despite the financial headwinds, certain pockets of the market have been thriving. Stocks in our Zacks Retail – Restaurant industry group have been outperforming this year. Wingstop (WING - Free Report) reported first-quarter earnings this morning, beating on both the top and bottom lines.
Q1 earnings of $0.59/share handily exceeded the $0.46 Zacks Consensus Estimate, a surprise of 28.26%. The figure compared favorably to the $0.34/share from a year ago. Revenues of $108.72 million also topped estimates by 7.73%. Shares were roughly flat in early trading and have advanced nearly 45% this year. WING is a Zacks Rank #2 (Buy).
Image Source: Zacks Investment Research
Another stock in this industry, Ruth’s Hospitality Group , soared more than 30% early Wednesday after Darden Restaurants announced its acquisition of Ruth’s Hospitality Group in a $715 million dollar deal.
Image Source: Zacks Investment Research
On the tech front, Advanced Micro Devices (AMD - Free Report) posted quarterly earnings results after the close on Tuesday. EPS of $0.60 beat out the $0.56/share Zacks Consensus Estimate, while revenues of $5.35 billion inched past forecasts. The stock tumbled 8% in early trading, as the chip giant’s revenue and gross margin guidance were below consensus for the second quarter.
Image Source: Zacks Investment Research
Apple (AAPL - Free Report) is set to report fiscal second-quarter results tomorrow after the close. Current estimates call for a -5.26% earnings decline at $1.44/share on -4.07% lower revenues ($93.32 billion). While many stocks have been punished this earnings season, big tech has held up very well, and it wouldn’t be surprising if Apple joins the party.
Investors will be paying close attention to statements from Fed Chair Jerome Powell this afternoon during the 2:30 p.m. EST press conference. Keep an eye on leading stocks as volatility is sure to be present around the announcement.
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All Eyes on Fed Rate Decision: Key Stocks to Watch
The Federal Open Market Committee (FOMC) is widely expected to pull the trigger on another 25-basis point (0.25%) rate hike today. But given three of the largest U.S. bank failures in recent months, will the Fed stay the course?
Current odds are showing a roughly 85% chance of a hike today, versus about a 15% chance of a pause:
Image Source: CME Group
Inflation – A Thorn in the Fed’s Side
Coming into today’s widely anticipated rate hike, the Federal Funds Rate was at an upper bound of 5%. The most recent Consumer Price Index (CPI) data from March shows prices increased at a 5% clip year-over-year. Keep in mind that the data is lagging, but it appears with today’s hike the Federal Funds Rate will be above the CPI – a necessary ingredient that has preceded the end of the past eight tightening cycles. This adds credence to the view that a potential hike later this afternoon may be the final push, culminating in the end of this current hiking cycle.
Image Source: Zacks Investment Research
Last week, the U.S. Bureau of Economic Analysis (BEA) conveyed the latest Personal Consumption Expenditure (PCE) inflation data from March, which was mainly in line with the consensus of a slight cooling. The PCE index reflects changes in the prices of goods and services purchased by consumers.
The headline figure decelerated to 4.2% year-over-year, substantially lower than the 5.1% reading in February. A monthly rise of just 0.1% was the softest dating back to July 2022. Energy prices declined 3.7% on the month, while food prices dropped 0.2%, relieving households of at least some pressure.
Core PCE, which strips out the more volatile food and energy components and is the Fed’s preferred inflation gauge, came in at 4.6% - just above estimates, but a tad lower than the 4.7% from February.
Regional Banking Fiasco
Markets have stumbled heading into Wednesday’s Fed announcement, closing lower the first two trading days of May. The recent regional banking turmoil resumed, with the SPDR S&P Regional Banking ETF (KRE - Free Report) shedding 6% during Tuesday’s session. Shares of PacWest Bancorp plunged over 27%, while Western Alliance (WAL - Free Report) sank 15%.
The volatility came on the heels of yet another major bank failure this year, as regulators took possession of San Francisco-based First Republic Bank early Monday. First Republic marked the third failure of an American bank after the collapse of Silicon Valley Bank and Signature Bank in March. Three of the four largest bank failures in U.S. history have occurred in the last two months.
The bulk of First Republic’s business was sold to JPMorgan Chase (JPM - Free Report) , who assumed $92 billion of First Republic’s insured and uninsured deposits. JPMorgan also purchased the majority of the bank’s assets.
Regional bank shares are attempting to stabilize on Wednesday ahead of the Fed announcement, with the KRE ETF up better than 2% in early trading.
Stocks to Watch
Despite the financial headwinds, certain pockets of the market have been thriving. Stocks in our Zacks Retail – Restaurant industry group have been outperforming this year. Wingstop (WING - Free Report) reported first-quarter earnings this morning, beating on both the top and bottom lines.
Q1 earnings of $0.59/share handily exceeded the $0.46 Zacks Consensus Estimate, a surprise of 28.26%. The figure compared favorably to the $0.34/share from a year ago. Revenues of $108.72 million also topped estimates by 7.73%. Shares were roughly flat in early trading and have advanced nearly 45% this year. WING is a Zacks Rank #2 (Buy).
Image Source: Zacks Investment Research
Another stock in this industry, Ruth’s Hospitality Group , soared more than 30% early Wednesday after Darden Restaurants announced its acquisition of Ruth’s Hospitality Group in a $715 million dollar deal.
Image Source: Zacks Investment Research
On the tech front, Advanced Micro Devices (AMD - Free Report) posted quarterly earnings results after the close on Tuesday. EPS of $0.60 beat out the $0.56/share Zacks Consensus Estimate, while revenues of $5.35 billion inched past forecasts. The stock tumbled 8% in early trading, as the chip giant’s revenue and gross margin guidance were below consensus for the second quarter.
Image Source: Zacks Investment Research
Apple (AAPL - Free Report) is set to report fiscal second-quarter results tomorrow after the close. Current estimates call for a -5.26% earnings decline at $1.44/share on -4.07% lower revenues ($93.32 billion). While many stocks have been punished this earnings season, big tech has held up very well, and it wouldn’t be surprising if Apple joins the party.
Investors will be paying close attention to statements from Fed Chair Jerome Powell this afternoon during the 2:30 p.m. EST press conference. Keep an eye on leading stocks as volatility is sure to be present around the announcement.