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Profit from the Pros By Kevin Matras Executive Vice President
S&P Ends Weekly Winning Streak At 3, Nasdaq Extends Theirs To 5
Stocks closed lower on Friday. The Dow, S&P, and small-cap Russell 2000 closed lower for the week. But the Nasdaq finished up.
The market was dominated by last week's FOMC Meeting Announcement.
To recap: the Fed left rates unchanged. And they will likely stay that way for the rest of the year, next year, and a portion of 2023.
They've started talking about talking about scaling back their bond purchases. They're not doing it just yet. They only agreed that in future meetings they will begin talking about it and give plenty of advance notice before doing anything.
They raised their growth outlook from 6.5% to 7.0% for this year. And they have it at 3.3% next year and 2.4% in 2023.
And they also raised their inflation forecast from 2.4% to 3.4% for this year, but pegged it at 2.1% next year, and 2.1% again in 2023. They reiterated their belief that the higher inflation readings are transitory, brought on by supply disruptions due to Covid. And once these bottlenecks ease, inflation should ease along with it.
It's hard to read anything bearish into any of that.
Quite frankly, with the economy booming, inflation rising (but temporarily), and the Fed essentially saying they will not get in the way, it's hard to think of anything more bullish.
So all of the handwringing over inflation killing the economy, and the market along with it, seems to be premature, if not misguided.
Remember, inflation doesn't tank the economy. High interest rates do.
And with rates near zero, and expected to stay that way thru 2022 and into 2023, the economy has an unfettered path to soar.
The bond market also doesn't seem overly concerned either.
While inflation is all anybody can talk about lately, the 10-Year Treasury dropped another -4% on Friday, and is down -17.8% from their March highs when the inflation frenzy began.
There's bound to be more volatility. You can count on that.
But don't get spooked by all of this inflation talk.
With personal savings rates over the last year in record territory, the consumer is in one of the strongest positions in decades.
The banking system has been a source of strength, even during the worst of the pandemic. And they've only gotten stronger since.
And corporate profits just hit new all-time highs, while estimates are on the rise.
This is history in the making.
And historic times typically usher in historic price moves.
So make sure you're taking full advantage of it.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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