Fed Hikes Rates, Signals More to Come (September 23 Market Recap)

Fed Hikes Rates, Signals More to Come (September 23 Market Recap)

Indices 

• Dow 29,590 –1,232 or –4.0%. 
• Nasdaq 10,867 -581 or –5.1%. 
• S&P 3,693 -180 or –4.6%. 
• USD10Y 3.697% +24.9bp or +7.2%. 
• WTI Crude $79.43/bbl  -$5.97 or –7.0%. 

Fed Hikes Rates 

As expected, on Wednesday, the Fed raised rates by 75 bp. For those of you scoring at home that’s five rate hikes this year for a total of 300 bp. While Fed Chair Powell acknowledged (pages 1 and 2) that while the U.S. economy and consumer spending are slowing and that the housing sector has weakened significantly, the Fed remains laser focused on the extremely tight labor market. Powell stated that the Summary of Economic Projections (SEP) anticipates unemployment rising to 4.4%, which is a loss of 1.3 million jobs (page 15) before inflation moderates to their 2% acceptable level. Further, the SEP anticipates another 100 to 150 bp (page 10) in hikes over the next two Fed meetings in November and December. 

Markets React 

As one might expect, the markets reacted negatively to this news and especially to Fed Chair Powell’s press conference immediately after the interest rate hike announcement. At various times during the press conference, members of the press attempted to give Powell the opportunity to address when the Fed might pause rate hikes given the lag between rate hikes and the effects of said hikes on the economy; Powell responded each time that the Fed was determined to see inflation return to their preferred target of 2%.  

What’s Next 

With the third quarter quickly coming to a close and the next Fed meeting not until the beginning of November (Nov 1 and 2), the focus turns to third quarter earnings and the pre-announcement period (when companies that know they are going to miss their numbers announce their disappointing results prior to their scheduled earnings release) which should start this week. With regard to economic data, the most important release will be Friday’s Headline and Core PCE report. On an annualized basis, the trailing 3-, 6- and 12-month’s Core PCE numbers have been 4.8%, 4.5%, and 4.8% respectively (page 11), thus any number lower than +4.8% would be reinforcement to the thesis that inflation is indeed receding, albeit slowly. Expectations are for a +4.7% year over year and +0.5% month over month print. 

Economic Calendar 

• Monday – N/A. 
• Tuesday – August Durable Goods Orders, September Consumer Confidence, August New Home Sales. 
• Wednesday – N/A.  
• Thursday – Initial Jobless Claims, Q2 Revised GDP. 
• Friday – August Headline and Core PCE. 

 If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

September 23 Daily Trading Recap… 

Monday – Dow +197 to 31,019, Nasdaq +86 to 11,535, S&P +26 to 3,899, USD10Y +4.2bp to 3.49%. 

• Nine of eleven S&P sectors traded higher today, led by Materials, Consumer Discretionary, and Industrials. 
• Fewer than 10 million shares changed hands today, the sixth lightest volume trading day of the year. 

Tuesday – Dow –313 to 30,706, Nasdaq -109 to 11,425, S&P -43 to 3,855, USD10Y +8.1bp to 3.571%. 

• All eleven S&P sectors traded down today, led lower by Real Estate, Materials, and Consumer Discretionary. 

Wednesday – Dow -522 to 30,183, Nasdaq -204 to 11,220, S&P -66 to 3,789, USD10Y –6.1bp to 3.51%. 

• Ten of eleven S&P sectors traded higher, led by Energy, Consumer Discretionary, and Utilities. 
• The Fed raised rates by another 75 bp and Fed Chair Powell’s statement was universally described as hawkish. 
• August Existing Home Sales fell for the seventh consecutive month and the 4.8 million annualized adjusted rate is the lowest since May of 2020. 

Thursday – Dow -107 to 30,076, Nasdaq -153 to 11,066, S&P -31 to 3,757, USD10Y +19.8bp to 3.708%. 

• Nine of eleven S&P sectors traded down today, led lower by Consumer Discretionary, Financials, and Industrials. 
• Jobless claims were lower for the fifth consecutive week at 213,000 claims vs 214,000 expected and last week’s revised lower 208,000 print (originally was 213,000). Continuing claims fell 22,000 to 1.379 million. 
• Costco (COST) reported third-quarter earnings and beat on earnings and revenues. The stock sold off 2.6% as the market concentrated on their increased freight and labor costs. 

Friday – Dow -486 to 29,590, Nasdaq –198 to 10,867, S&P -64 to 3,693, USD10Y -1.1bp to 3.697%.

• All eleven S&P sectors traded down today led lower by Energy, Consumer Discretionary, and Materials. 
• September S&P US Manufacturing (flash) was better than expectations at 51.8 vs 51.4 and last month’s 51.5 print. 
• September S&P Services PMI (flash) was also better at 49.2 vs expectations of 46 and last month’s 43.7 print. 

 If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.