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Markets have had 24+ hours to live with this idea that we’re going to have a Fed funds rate over +5% for an extended period of time, and they do not like it one bit. The “era of cheap money” being over is one thing; extensive, prohibitively high costs for the foreseeable future is quite another. This is not a prospect that had been baked into the economic outlook by equities; it would appear that’s now changing.
We’re more likely to see — for the first time since right around this time 14 years ago, at the onset of the Great Recession — heads of households sitting at the kitchen table, deciding which expenses are really necessary, and which are mere luxuries. Some good old fashioned belt-tightening may be in order, and that is not good for things like streaming stocks — Netflix (NFLX - Free Report) , for example, is -8.6% for the session.
All 11 S&P 500 sectors closed lower on the day; no indices were spared: the Dow, which had plummeted -950 points at one moment during the session, closed -764 points, -2.25%. The S&P fell -2.49%, while the tech-heavy Nasdaq dumped a nasty -360 points, -3.23% for one of its worst trading days in recent memory. The small-cap Russell 2000 lost -2.71% on the session.
It’s too early to pave the way for this silver-lining scenario, but let’s entertain it as something of an escape hatch from our current bout with woe: if the economic data determines it, the Fed will — and should — reverse course. Analyst currently feel the Fed will be late to the party getting out of draconian anti-inflation measures like higher interest rates for longer, just the way it was late taking inflation seriously as a threat to the economy. But this does not need to be the case.
For one thing, the Fed now understands the size and shape of overall inflation and its behavior in our current environment. So it’s tackling new problems with better information on how to attack it. With another six weeks until the next Fed policy meeting, and virtually every economic print under the sun due out before then, there are plenty of opportunities for a crumbling economy to change the Fed’s mind about an indefinite clamp on interest rates at 5%.
We’re not even at 5% currently, for one thing. And while it may be too much to expect a dovish adjustment on a fresh new dot-plot from the February meeting, we certainly can envision metrics tripping wires in the current dot-plot that bear addressing at that time. We’re still 75 bps beneath that 5%; there’s no rule that states the Fed has to get there soon, or at all.
Adobe (ADBE - Free Report) shares are up +6% in after-hours trading, after reporting fiscal Q4 earnings that beat estimates on quarterly revenues that were in-line with expectations. Earnings of $3.60 per share outperformed by a solid dime on $4.53 billion in sales, slightly above the Zacks consensus $4.52 billion. The company sees “massive opportunities” in 2023, and posted Digital Media numbers ahead of expectations today. Adobe is still well-off its share price from the start of this year, down roughly -40% year to date.
Image: Bigstock
2023 Shaping Up to Be a Consequential Year
Markets have had 24+ hours to live with this idea that we’re going to have a Fed funds rate over +5% for an extended period of time, and they do not like it one bit. The “era of cheap money” being over is one thing; extensive, prohibitively high costs for the foreseeable future is quite another. This is not a prospect that had been baked into the economic outlook by equities; it would appear that’s now changing.
We’re more likely to see — for the first time since right around this time 14 years ago, at the onset of the Great Recession — heads of households sitting at the kitchen table, deciding which expenses are really necessary, and which are mere luxuries. Some good old fashioned belt-tightening may be in order, and that is not good for things like streaming stocks — Netflix (NFLX - Free Report) , for example, is -8.6% for the session.
All 11 S&P 500 sectors closed lower on the day; no indices were spared: the Dow, which had plummeted -950 points at one moment during the session, closed -764 points, -2.25%. The S&P fell -2.49%, while the tech-heavy Nasdaq dumped a nasty -360 points, -3.23% for one of its worst trading days in recent memory. The small-cap Russell 2000 lost -2.71% on the session.
It’s too early to pave the way for this silver-lining scenario, but let’s entertain it as something of an escape hatch from our current bout with woe: if the economic data determines it, the Fed will — and should — reverse course. Analyst currently feel the Fed will be late to the party getting out of draconian anti-inflation measures like higher interest rates for longer, just the way it was late taking inflation seriously as a threat to the economy. But this does not need to be the case.
For one thing, the Fed now understands the size and shape of overall inflation and its behavior in our current environment. So it’s tackling new problems with better information on how to attack it. With another six weeks until the next Fed policy meeting, and virtually every economic print under the sun due out before then, there are plenty of opportunities for a crumbling economy to change the Fed’s mind about an indefinite clamp on interest rates at 5%.
We’re not even at 5% currently, for one thing. And while it may be too much to expect a dovish adjustment on a fresh new dot-plot from the February meeting, we certainly can envision metrics tripping wires in the current dot-plot that bear addressing at that time. We’re still 75 bps beneath that 5%; there’s no rule that states the Fed has to get there soon, or at all.
Adobe (ADBE - Free Report) shares are up +6% in after-hours trading, after reporting fiscal Q4 earnings that beat estimates on quarterly revenues that were in-line with expectations. Earnings of $3.60 per share outperformed by a solid dime on $4.53 billion in sales, slightly above the Zacks consensus $4.52 billion. The company sees “massive opportunities” in 2023, and posted Digital Media numbers ahead of expectations today. Adobe is still well-off its share price from the start of this year, down roughly -40% year to date.
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