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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Down After Fed Holds Rates Steady
Stocks closed lower yesterday after the Fed announcement on rates, and the Fed Chairman's press conference.
Stocks were up for most of the day before the FOMC announcement. But afterwards, when the Fed announced they would hold rates steady, as expected, the markets turned negative.
And that was because it was noted that 12 out of 19 committee members (63%) still expect one more rate hike by the end of the year, which means at November's or December's meeting.
Moreover, they estimated the Fed Funds rate for this year at 5.6% (which would indeed mean one more 25 basis point rate hike); they raised their target for next year to 5.1% from their previous estimate of 4.6% (which means they expect to cut interest rates less than they previously expected); and they put it at 3.9% for the end of 2025.
They also upgraded their language on economic growth changing it from 'moderate' to 'solid.' They now see full year GDP coming in at 2.1% for this year vs. their previous estimate of 1.0%, and then slipping to 1.5% for 2024.
But they still don't expect to hit their goal of 2% inflation this year as they predict PCE inflation will finish at 3.3% this year, and 2.5% next year. So the Fed's target of 2% inflation is not expected to be achieved until 2025. Hence the higher rates for longer.
In other news, yesterday's MBA Mortgage Applications rose 5.4% last week with purchases up 2.3% and refi's up 13.2%.
Today we'll get Weekly Jobless Claims, the Philadelphia Fed Manufacturing Index, Existing Home Sales, and Leading Indicators.
Today also marks the seventh day of the UAW strike.
Interestingly, the Canadian union Unifor reached a deal with Ford over their contract negotiations (early reports suggest a 36% pay increase over 4 years), thus avoiding a strike. This is expected to be used as the model for negotiating with GM and Stellantis.
While the Canadian negotiations are different than the U.S., pay is one of the main sticking points for both. And the 36% increase is pretty close to the 40% that the UAW is asking. (Although, there are other things on the table as well.) Nonetheless, the Canadian deal offers a glimmer of hope that something might get done over here. We shall see.
And for those watching the budget talks, we have 10 more days to get a deal done by the end of the month to avoid a government shutdown.
Yesterday's decline makes it harder for September to turn things around by month's end as there's only 7 trading days left. But it's still only 1 or 2 good days away from getting back into the green.
But as I mentioned the other day, regardless of how September shakes out, the stats are still on the side of the bulls for the rest of the year. History shows if the market is up more than 10% thru July, and August is down, the remainder of the year is up 100% of the time with an average gain of 9.9% (median of 8.7%).
And those are great odds.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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