Business & Investment

Inflation, rising interest rates, the Fed could whip stocks

The trader is working on the floor of the New York Stock Exchange (NYSE) in New York City, USA on December 2, 2021.

Brendan MacDermid | Reuters

Bond markets could once again set the direction for last week, after rapidly rising interest rates have given stocks a tremendous start to the New Year.

next week, Key inflation Report Expected and chair of the Federal Reserve Board Jerome Powell I will testify on Tuesday His nomination hearing In front of the Senate panel, Hearing on the nomination of Federal Reserve Board Lael Brainard The vice-chairman’s post is set for Thursday.

This week also marks the beginning of the fourth quarter earnings period with reports from major banks. JPMorgan Chase, Citigroup When Wells Fargo On Friday.

Leogro Housekey, Chief Investment Officer of BNY Mellon Wealth Management, said: “This year is a good quarter for earnings and I think it will be a good year, so the earnings outlook is generally bright.”

Grohowski said the market will focus primarily on Powell and Brenard’s hearings, Wednesday’s consumer price index, and the next day’s producer price index.

“I think it’s unrealistic to assume that revenue will be a one-page story and the Fed’s monetary policy will be a two-page story,” he said.

Equities were a rough first week until 2022, as bond yields rose, both in high expectations of the Federal Reserve’s rate hike and the view that Covid’s Omicron variant was peaking in the coming weeks. .. Yields are high when bonds are sold out.

The technology was particularly hard hit. Nasdaq Composite decreased by more than 4% in one week, Dow Basically flat. The Technology Select Sector SPDR Fund It was 4.2% off as of Friday afternoon. However, banks have moved higher with the prospect that rising interest rates will help their earnings. The Financial Select Sector SPDR Fund It increased by more than 5%.

“This week was an awakening call to address for 2022,” said Grohowski. “Lower returns and more risk. Welcome to the New Year.”

Yields rose sharply across the curve, but the dramatic 10-year benchmark move was particularly rattling for investors. The decade affecting mortgages and other loans rose from 1.51% in the last hour of trading in 2021 to 1.80% on Friday.

According to Wells Fargo, it will be the second largest move in 20 years in terms of yields in the first week of the year.

“It was more dramatic than we expected, and it was surprising that the Fed turned to a more hawkish stance,” Grohowski said. “Most market participants expected higher interest rates and more accommodative monetary policy, but the Fed suggests a possible 90% rate hike in March shows that New Year’s Eve is only 63%. There was a pretty dramatic tone change, which was featured in the Fed’s minutes this week, and the market is adapting to it. “

Powell’s hearing on Tuesday wasn’t because he was expected to make the news, but because he was Federal Reserve Minutes Tone, Released last Wednesday.

The central bank said in its minutes that authorities were also discussing when to start shrinking their nearly $ 9 trillion balance sheet. The Federal Reserve has already predicted a tightening policy with a rate hike in the third quarter of this year, and a reduction in bond holdings will tighten it further.

Bond investors also responded to disappointment December work will be reported on Friday By sending higher interest rates. Only 199,000 jobs were created last month, less than half of what we expected. However, the unemployment rate fell more than expected, from 4.2% to 3.9%. The average hourly wage increased by 0.6% and 4.7% from the previous year.

Economists have blamed weak reports, in part because of a shortage of workers to get the job done, but the Fed is nevertheless expected to move to raise interest rates.

Grant Thornton Chief Economist Diane Swonk said, “This is the Fed saying it’s full employment. There are still gaps, but wage spikes are much bigger and lower than everyone expected. I was concentrating on my work. ” “We have been about 3.5 million shy people since the last peak, and the labor market behaves as if it were above full employment.”

Inflation remains at the forefront of CPI and PPI reports. Some economists believe inflation is near peak, but economists expect another hot month for both measurements. November headline CPI is 6.8% It was the best since 1982.

Equity investors will continue to monitor yields. Technology and growth stocks are most sensitive to rising interest rates, as investors pay for future earnings promises. Higher rates mean that the cost of money will increase, which will change the calculation of their investment.

Grohowski is moving faster than expected, but expects a 10-year yield to reach 2.25% by the end of the year. “Getting there early causes more pain … in the long-term equity sector like technology and Nasdaq,” he said. “I think yields have settled and technology is back. I think we can expect really good profits this year. Technology will continue to be a beneficiary.”

Grohowski said the market could fall 10% in 2022, but there is so much cash waiting to enter the market that it could be down in the short term. Be suspicious of.

“I think this dry powder will work. I think we’re heading for some kind of rough start and reset,” he said. “Ultimately, I think this reset of expectations will be sound. After last year’s high returns, low volatility, and market doubling, market participants received a wake-up call earlier this year. I think. 3 years. [But] In the next 12-18 months, sledding will be even rougher. “

There will be three Treasury auctions next week, with a $ 52 billion three-year bond auction on Tuesday, a $ 36 billion auction on Wednesday, and a $ 22 billion auction on Thursday for 30-year bonds.

The decade soared to 1.80% on Friday, but could easily return to that level next week. It puts it just above the height of 2021.

“At these levels and around, markets will seek short-term support,” said Greg Faranello, head of US interest rates at Ameliebet Securities. He added that auctions could be an event that currently helps limit yield movements.

Calendar one week ahead

Monday

Revenue: Commercial Metals, Accolade, Tiley

Wholesale business at 10 am

Tuesday

Revenue: Albertsons

6am NFIB Survey

9:30 am Kansas City Fed President Esther George

At 10 am, Federal Reserve Chairman Jerome Powell’s Nomination Hearing is heard by the Senate Committee on Banking, Housing and Urban Issues

4:00 pm Fed President James Bullard of St. Louis

Wednesday

Revenue: Jeffreys Financial, Infosys, KB Home, Wipro

8:30 am CPI

2:00 pm federal budget

2:00 pm Beige Book

Thursday

Revenue: Delta Air Lines, Taiwan TSMC

8:30 am First complaint

8:30 am PPI

At 10 am, Federal Reserve Governor Lael Brainard appoints Vice-Chairman of the Federal Reserve in front of the Senate on Banking, Housing and Urban Issues

12:00 pm Richmond Federal Reserve Bank of Richmond, President Thomas Barkin

1:00 pm Chicago Fed President Charles Evans

Friday

Revenue: JPMorgan Chase, Black rock, Citigroup, Wells Fargo

8:30 am Retail sale

8:30 am Import price

9:15 am Industrial production

Consumer sentiment at 10 am

Corporate inventory at 10 am

11:00 am Fed President John Williams

Inflation, rising interest rates, the Fed could whip stocks

https://www.cnbc.com/2022/01/07/inflation-rising-rates-and-the-federal-reserve-could-whip-stocks-around-in-the-week-ahead.html Inflation, rising interest rates, the Fed could whip stocks

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