![]() economy would be highly uncertain and could be "quite adverse." Powell reiterated that the debt ceiling should be raised "in a timely way" and that the consequences of default to the U.S.The Fed's staff continues to forecast a "mild" recession (note: it is historically rare for the FOMC's members to specifically use the "R" word) but Powell did push back on that forecast a bit.Out of the blocks, although Powell noted the "meaningful change" in the statement's language, he said a "decision on a pause" was not made today.Before getting to questions from reporters, Powell said that conditions in the banking sector "broadly improved" since early March, perhaps reflecting the early read the FOMC gets on the Senior Loan Officer Opinion Survey (SLOOS) set to be released to the public next week. But it also reinforces one of my favorite admonitions: "Analysis of an average can lead to average analysis." While penning this commentary, I saw several headlines that flashed something along the lines of "typically, the final rate hike has been a positive for stocks"… there is no "typical" when it comes to this analysis.Īs usual when I pen these commentaries, in the interest of getting this published in a timely manner, the highlights bulleted below cover the first half hour or so of the press conference with Fed Chair Jerome Powell. This highlights that there are always myriad influences on market behavior-not just monetary policy. The accompanying table below details each cycle, with the date of the final hike, along with S&P 500 performance at the six-month and one-year points. Obviously, there has been a wide range of outcomes-generally in the range of +30% to -30% over the span of the subsequent year. But, take a look at the same average in the second chart below with the full range of outcomes based on the 14 cycles since the S&P 500's inception in 1928. The first chart below does indeed show the average trajectory of the S&P 500 from six months prior to the final rate hike of each major cycle out to the following year (trading days are noted, not calendar days).įocusing only on the average would suggest a pattern of weakness leading into the final hike, some strength in the immediate aftermath of the final hike, and then a significant sell-off out to about 100 trading days following the final hike. ![]() Be mindful of the fact that although there is an "average" associated with how the S&P 500 has performed, the relatively small historical sample size (14) of major rate-hiking cycles, and the ample range of prior outcomes, suggests caution around thinking there is a consistent pattern to apply to investment decision making. We've been increasingly fielding questions about market behavior following the end of Fed tightening cycles. Trying to quell burgeoning concerns, the FOMC statement reiterated that "the U.S. The emergency funding facility the Fed put in place following the failure of Silicon Valley Bank in March initially eased some strains, but with the more recent (and larger) failure of First Republic, those strains have re-emerged. The aggressiveness of this cycle, with the Fed fighting a four decade high in inflation, has put increasing pressure on the banking system, with three of the four largest bank failures occurring just in the past couple of months (Washington Mutual maintains the top spot from the GFC era). Of note was the change in the statement now describing job growth as "robust" rather than having "picked up." That is undoubtedly, in part, driven by what has been strength in the labor market. The committee remains highly attentive to inflation risks." In other words, they are trying to express optionality. The extent of these effects remains uncertain. With a look ahead: "Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. As a reminder, the fed funds rate was near zero early last year. ![]() ![]() This move caps off the most aggressive tightening cycle in four decades and puts the fed funds rate, at long last, back to the level it was before the global financial crisis (GFC). Environmental, Social and Governance (ESG) Investing.Bond Funds, Bond ETFs, and Preferred Securities.ADRs, Foreign Ordinaries & Canadian Stocks.Environmental, Social and Governance (ESG) ETFs.Environmental, Social and Governance (ESG) Mutual Funds.Benefits and Considerations of Mutual Funds.
0 Comments
Leave a Reply. |