Source: Wind
The three major U.S. stock indexes rose on Wednesday after several retailers offered investors some upbeat views on sales this year, while the release of minutes from the Federal Reserve’s most recent policy meeting showed policymakers’ plans to tackle inflation barely exceeded investor expectations.
Specifically, the S&P 500 rose 37.25 points, or 0.95%, to 3,978.73. The Nasdaq rose 170.29 points, or 1.51%, to 11,434.74, reversing a sharp sell-off in tech stocks the previous day. The Dow Jones Industrial Average rose for a fourth straight session, gaining 191.66 points, or 0.60%, to 32120.28.
U.S. stocks tumbled in 2022 as investors adjusted to soaring consumer prices and the Fed’s response. Sean O’Hara, president of Pacer ETFs Distributors, said that as interest rates climb and the economic outlook dims, stocks of many companies are looking increasingly expensive, at least relative to their earnings.
U.S. stocks got off to a rocky start to the week on concerns that the Federal Reserve has tightened monetary policy to combat high inflation and that such tightening could lead to an economic slowdown. The S&P 500 fell 17% from its last record high in January and briefly fell into bear market territory on Friday before recovering losses late in the session.
A notable feature of the minutes of the Fed’s May meeting is that, unlike in March, it did not provide forecast material. But that doesn’t mean Fed staff aren’t discussing and revising their forecasts for the economy and inflation.
In fact, the “Staff Economic Outlook” section of the meeting minutes shows: “Fed staff’s forecast for PCE price inflation has been revised up slightly in the second half of 2022 and in 2023 in response to the slow resolution of supply constraints in the first half of 2022. Imports The forecast path for prices is higher and it is judged that wage increases will put more upward pressure on service prices than previously assumed.”
“Total PCE price inflation is projected to be 4.3% in 2022,” the minutes concluded. “As aggregate demand slows and expected supply constraints ease, supply-demand imbalances in the economy ease, and personal consumption expenditures price inflation is projected to rise in 2023. to 2.5% and to 2.1% in 2024.”
While most Fed officials agree that the Fed will continue to tighten policy by 50 basis points in the next few meetings and will continue to take a series of aggressive moves, analysts now expect this may not last too long Long.
The Fed’s latest PCE forecast puts it at 4.3% at the end of 2022, falling to 2.5% in 2023 and 2.1% in 2024. If policymakers’ forecasts are accurate, that means the tightening cycle could end after three rate hikes, which also “pave the way” for a rebound in risk assets in the second half of 2022.
JPMorgan analyst Andrew Tyler wrote overnight: “While financial conditions are already at levels where we saw the Fed turn in 2018/19, we are unlikely to see the Fed turn at this stage of the tightening cycle. After all, Powell has previously said the Fed needs to see substantial evidence of a slowdown in inflation. Therefore, “at the September Fed meeting, we may see a turning point, and basically there are 3 CPI data left to prove the situation (the release date of the August CPI is September 13).”
In other words: Analysts expect the Fed to deliver three more 50 basis point rate hikes, with a possible policy change to follow.
Editor/Viola
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