Stocks Soar To Start The Week
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The markets were primed for a bounce after last week's drubbing.
And with stocks so oversold, there could be more upside in store.
Inflation, and all of the worries that come with it, will continue to dominate trading.
After last week's 75 basis point interest rate hike, traders at first cheered the news, as it showed the Fed was finally getting serious about inflation. But the next day, stocks tanked on worries that a too aggressive tightening schedule could slow down the economy too much and lead to a recession.
And that's the quandary the market now finds itself in. While we need higher rates to tame inflation, it comes at the potential risk to the economy. We could very well see a soft landing. But the market, which has a tendency to trade at extremes, appeared to be pricing in the worst-case scenario, i.e., a recession (at least as of last week).
Of course, if the worst-case does not come to pass, then stocks are grossly oversold, and could see a sharp rally higher.
And yesterday's move up could very well be the beginning of that. Especially since the Fed is not expecting a recession, and is forecasting GDP to hit 1.7% this year, and 1.7% next year.
We'll hear from Fed Chair, Jerome Powell, today as he provides his semiannual testimony on Monetary Policy to the Senate Committee on Banking, Housing and Urban Affairs. (On Thursday, he'll do the same to the House Committee on Financial Services.)
It's very possible that Mr. Powell's comments could move the market.
In the meantime, yesterday's rally was quite strong. And we will see if traders can build on that today.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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