A relentless rise in inflation and geopolitical tensions brought on by Russia’s invasion of Ukraine have been the main themes for US markets this year. Since his Fed meeting in Jackson Hole in August, investors have taken to heart what business means when they say the Fed has decided to push inflation back towards his 2% target. I’m starting to notice. (Inflation is currently at about 8%.) The Federal Reserve (Fed) hiked interest rates by another 75 basis points in September, prompting investors to keep inflation under control amid increasing hawkish rhetoric. I’m starting to wonder how much the Fed is going to put pressure on the economy. If we get an answer to this question, the tone of the market could improve from the bleak sentiment that exists today. The silver lining for patient investors is that both stocks and bonds tend to do very well once inflation peaks and takes a convincing downward trajectory. we are not there yet. In addition, the situation in Ukraine seems to be getting more unsettling by the day, with Russia illegally annexing her four provinces of Ukraine and Putin doing whatever it takes to defend this new “Russian” territory. threatens to use means. We are rooting for Ukraine’s achievements on the ground, but after this horrific debacle, there seems to be no clear breach of President Putin’s attempts to save face with his own people.
more work can bring pain
The Fed has a lot of work to do. In the words of Chairman Powell, there is no painless way to bring inflation down. Consumer spending is now relatively strong, unemployment is near a record low of 3.7%, and wages continue to rise. But some of the negative economic news the Fed is trying to force has started to come out in recent weeks. According to recent Jobs and Turnover (JOLTS) data, job openings fell by one million jobs in August. That’s nearly 10% of his total job openings and the biggest drop since the outbreak of the pandemic. On the corporate side, huge revenue losses from FedEx, CarMax and Nike show that the Fed’s tough drugs are starting to have the desired effect.
So when can investors expect the market to improve?
First, we need to see a distinct peak in inflation. Unfortunately, despite signs of a weakening economy and a collapse in commodity prices, the main inflation indicators have yet to begin to change. Data released on Friday showed that the personal consumption expenditure (PCE) price index (excluding food and energy) rose slightly above expectations last month by 0.6%, but investors said the Fed could not obtain any hope of considering a course correction. Near future.
Second, investors should reset their earnings expectations for the year ahead. Last Thursday, Boise-based Micron Technology (Ticker MU), a global leader in dynamic random access memory (DRAM) manufacturing and a pioneer in the semiconductor industry, reported its fourth quarter results. Despite mixed quarter numbers, the company issued a worse-than-expected outlook for next year. Despite grim forecasts, MU shares closed slightly higher on the day the Dow fell his 500 points. It continues to rise this week. Such price action shows that investors are starting to price in the slower growth that awaits him in 2023 for the global economy. Similar events need to happen in more companies. Only if investors, by and large, truly expect 2023 to be a difficult year will we find a bottom for stocks.
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