Last year, when economists and investment managers were publicly urging the Federal Reserve to stop buying back assets and start raising interest rates, today’s market scenario is what they were fearing. The Dow is now down another -595 points in today’s pre-market, -1.82% — and this is what counts as good news.
The S&P 500 has dropped -2.31% so far in early trading, and the Nasdaq is -341 points, -2.77%. This follows Friday’s abysmal -2.73% on the Dow, -2.91% on the S&P and the Nasdaq -3.52%, and from another roughly -2% across the board last Thursday.
No place is safe ahead of this week’s Fed meeting, where it has been expected for months that a 50-basis-point (bps) hike was in the cards. This, however, was before Friday morning’s Consumer Price Index (CPI) figures, which reached a fresh 41-year high at +8.6% year over year. This wasn’t all gasoline and food prices, either: the “core” read still came in slightly higher than expected, to +6.0%.
Thus, inflation is proving very stubborn — as those economists and investment managers were pointing out it would be way back when — so now the thinking is 50 bps won’t be enough to calm the beast; the markets look to be pricing in 75 bps or even a full 1.00% on Wednesday, which, while it might whip inflation more harshly in the near-term, also brings with it fears that the economy could be driven into recession.
Fed Chair Jay Powell has proven very steady and relatively transparent in his tenure, regardless whether or not his methods have been successful. Thus, without having already telegraphed a 75 or 100 bps hike ahead of this week’s meeting, we’re likely to see that half-point increase, perhaps with a tougher tone to set up the July meeting.
If this happens — hard as it may be to see from this vista — we may actually get a pop in the markets that a more draconian level of interest rates were not taken. Although the results were not apparent in the CPI numbers last week, there are some cues that the economy is cooling ever so slightly on the top end; with home mortgage demand so far being among the most conspicuous reads to this end.
A 50-bps raise would bring the Fed funds rate to 1.25-1.50%, which is still a full point beneath where we were ahead of the Covid pandemic, when Powell’s Fed brought rates to zero and began it Quantitative Easing program. This means the Fed still does have room to raise rates if it wants to; even though Powell himself that “75 bps is not on the table” at his last press conference following the latest Fed meeting, perhaps he had his fingers crossed?
In any case, we’ve got our fingers crossed that market conditions improve from current levels this week. The Nasdaq is now -30% from its early November 2021 highs; 2022 has so far been a nightmare for equities — not to mention crypto, which is way down again too this morning — and the sooner we can legitimately turn the corner on inflation metrics, the better.
Image: Bigstock
Wall Street Starts a Fresh Week Deep in Red
Last year, when economists and investment managers were publicly urging the Federal Reserve to stop buying back assets and start raising interest rates, today’s market scenario is what they were fearing. The Dow is now down another -595 points in today’s pre-market, -1.82% — and this is what counts as good news.
The S&P 500 has dropped -2.31% so far in early trading, and the Nasdaq is -341 points, -2.77%. This follows Friday’s abysmal -2.73% on the Dow, -2.91% on the S&P and the Nasdaq -3.52%, and from another roughly -2% across the board last Thursday.
No place is safe ahead of this week’s Fed meeting, where it has been expected for months that a 50-basis-point (bps) hike was in the cards. This, however, was before Friday morning’s Consumer Price Index (CPI) figures, which reached a fresh 41-year high at +8.6% year over year. This wasn’t all gasoline and food prices, either: the “core” read still came in slightly higher than expected, to +6.0%.
Thus, inflation is proving very stubborn — as those economists and investment managers were pointing out it would be way back when — so now the thinking is 50 bps won’t be enough to calm the beast; the markets look to be pricing in 75 bps or even a full 1.00% on Wednesday, which, while it might whip inflation more harshly in the near-term, also brings with it fears that the economy could be driven into recession.
Fed Chair Jay Powell has proven very steady and relatively transparent in his tenure, regardless whether or not his methods have been successful. Thus, without having already telegraphed a 75 or 100 bps hike ahead of this week’s meeting, we’re likely to see that half-point increase, perhaps with a tougher tone to set up the July meeting.
If this happens — hard as it may be to see from this vista — we may actually get a pop in the markets that a more draconian level of interest rates were not taken. Although the results were not apparent in the CPI numbers last week, there are some cues that the economy is cooling ever so slightly on the top end; with home mortgage demand so far being among the most conspicuous reads to this end.
A 50-bps raise would bring the Fed funds rate to 1.25-1.50%, which is still a full point beneath where we were ahead of the Covid pandemic, when Powell’s Fed brought rates to zero and began it Quantitative Easing program. This means the Fed still does have room to raise rates if it wants to; even though Powell himself that “75 bps is not on the table” at his last press conference following the latest Fed meeting, perhaps he had his fingers crossed?
In any case, we’ve got our fingers crossed that market conditions improve from current levels this week. The Nasdaq is now -30% from its early November 2021 highs; 2022 has so far been a nightmare for equities — not to mention crypto, which is way down again too this morning — and the sooner we can legitimately turn the corner on inflation metrics, the better.