Minutes to the latest Federal Open Market Committee (FOMC) from mid-last month came out earlier this afternoon, and markets took that opportunity to drop lower across all major indexes. Harsher determinations regarding interest rate hikes this year illustrate a more hawkish Fed at present. We heard this in the address from Fed President Lael Brainard yesterday, and we’re seeing it in the minutes today.
The Fed minutes were basically saying, “This is not easy.” Engineering a soft landing to bring inflation under control without throttling markets in the near-term is a bit like threading the needle while jogging: it can be done, but it’s far from guaranteed. Signals are that we can expect to see one or more half-point rate hikes this year, beginning with the meeting early next month.
Market selling brings us back to where we’d been a few weeks ago, before it appeared we were climbing out of our bearish hole. Based on current levels, with the Dow and Nasdaq both -2000 points below their all-time highs, we look priced in for about 250 basis points worth of rate hikes in 2022. This would paint a very different picture by the end of this year than we saw at the start of it.
On the day, defensive sectors like Utilities and Healthcare — +2% and +1.5%, respectively — led the way again, while Consumer Discretionary and Tech — -2.6% and -2.5%, respectively — performed the worst. Dealing with the specter of harnessing inflation is pretty bitter medicine, especially among forward-looking growth which, until recently, commanded a very high multiple. Yet medicine it still is; administered correctly, it will make the patient better.
As of the closing bell, the Dow fell -144 points, -0.42% — yet it was off the day’s low of -364 points directly following the release of the FOMC minutes. The S&P 500 was -44 points, -0.97%, while the Nasdaq lost another -315 points, -2.22% on the day. The small-cap Russell 2000 wound up -1.42%, and is now -18% from its November highs.
As it turns out, pricing-in rate hikes, and subsequent demand destruction due to consumers being priced out of desired goods and services, isn’t very happy business. Just keep in mind that the alternative — doing nothing about runaway inflation — would eventually become a much worse problem. And once the bearishness takes its toll, it will afford us greener pastures in the weeks and months to come.
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Indexes Take Their Medicine on Inflation
Minutes to the latest Federal Open Market Committee (FOMC) from mid-last month came out earlier this afternoon, and markets took that opportunity to drop lower across all major indexes. Harsher determinations regarding interest rate hikes this year illustrate a more hawkish Fed at present. We heard this in the address from Fed President Lael Brainard yesterday, and we’re seeing it in the minutes today.
The Fed minutes were basically saying, “This is not easy.” Engineering a soft landing to bring inflation under control without throttling markets in the near-term is a bit like threading the needle while jogging: it can be done, but it’s far from guaranteed. Signals are that we can expect to see one or more half-point rate hikes this year, beginning with the meeting early next month.
Market selling brings us back to where we’d been a few weeks ago, before it appeared we were climbing out of our bearish hole. Based on current levels, with the Dow and Nasdaq both -2000 points below their all-time highs, we look priced in for about 250 basis points worth of rate hikes in 2022. This would paint a very different picture by the end of this year than we saw at the start of it.
On the day, defensive sectors like Utilities and Healthcare — +2% and +1.5%, respectively — led the way again, while Consumer Discretionary and Tech — -2.6% and -2.5%, respectively — performed the worst. Dealing with the specter of harnessing inflation is pretty bitter medicine, especially among forward-looking growth which, until recently, commanded a very high multiple. Yet medicine it still is; administered correctly, it will make the patient better.
As of the closing bell, the Dow fell -144 points, -0.42% — yet it was off the day’s low of -364 points directly following the release of the FOMC minutes. The S&P 500 was -44 points, -0.97%, while the Nasdaq lost another -315 points, -2.22% on the day. The small-cap Russell 2000 wound up -1.42%, and is now -18% from its November highs.
As it turns out, pricing-in rate hikes, and subsequent demand destruction due to consumers being priced out of desired goods and services, isn’t very happy business. Just keep in mind that the alternative — doing nothing about runaway inflation — would eventually become a much worse problem. And once the bearishness takes its toll, it will afford us greener pastures in the weeks and months to come.
Questions or comments about this article and/or its author? Click here>>