Stocks closed sharply higher yesterday with all of the indexes in the green.
Falling oil prices, and an improving GDP outlook, sent stocks soaring.
Even though OPEC+ announced earlier in the week that they would cut oil production by 100,000 barrels a day beginning in October, crude oil still fell by more than -5% yesterday.
Inflation has ticked lower each month for the last 2 months. And with energy prices falling, that should serve to lower inflation even more. It's still near 40-year highs. But if peak inflation is in the rear view mirror, that bodes well for the economy.
And while the Fed is insistent that they will keep raising rates until inflation has been tamed, if it can fall faster, then rates may not need go as high. Nonetheless, the Fed is widely expected to raise rates by another 75 basis points at their next FOMC meeting on September 20-21. That would put the Fed Funds rate at a midpoint of 3.13%. And they are likely to keep raising through the rest of the year.
But the consensus right now is that it's unlikely to cross 4% by year's end. And the Fed previously forecast the target rate as 'only' getting to 3-3.5% by the end of the year.
We will see what they say at their next meeting. But the market appears to have gotten a degree of comfortability with rates moving into the upper 3's and getting near 4. And higher rates are a lesser market evil that rampant inflation and price instability.
In fact, even with rates climbing, Q3 GDP estimates are forecast at 1.4%. That's a big improvement from Q2's -0.6% and Q1's -1.6%.
In other news, MBA Mortgage Applications fell -0.8% w/w, with purchases down -0.7%, and refi's down -1.1%.
Today we'll get Weekly Jobless Claims, and Consumer Credit.
And we'll hear from Fed Chair, Jerome Powell, as he speaks at the Cato Institute's 40th Annual Monetary Conference. He's set to speak at 9:10 AM ET.
Yesterday's rally was impressive. While one day does not erase the pullback we saw over the last 3 weeks. It's a start.
The economy definitely has it's challenges. But with the forecast for economic growth in the second half (a far cry from the contraction of the first half), coupled with a robust jobs market and strong consumer spending, there's plenty of reasons to be optimistic for the market right now.
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