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Profit from the Pros By Kevin Matras Executive Vice President
Stocks End Lower, On Pace For Another Down Week
Stocks closed lower across the board with all of the major indexes heading for another down week.
Wednesday afternoon's FOMC announcement on rates, and the likelihood of one more rate hike this year, along with fewer rate cuts next year, weighed on stock prices.
The Fed has been saying all year that getting inflation back down to 2% was proving to be more difficult than expected, and that it would take plenty of time, citing their mantra of rates needing to stay higher for longer. That was underscored on Wednesday when 63% of the committee members said they expect another rate hike by year's end (meaning at the November or December meeting), which would put the Fed Funds rate at a midpoint of 5.6%. That was further underscored when they increased their target rate for next year to 5.1% vs. their previous forecast for 4.6%, meaning they only expect to cut rates by 50 basis points next year rather than the 100 bps they had expected. Higher. For. Longer.
On the bright side, they also increased their GDP forecast putting 2023 growth at 2.1% vs. the their previous forecast of 1.0%, and their prior estimate of just 0.4%.
But at the moment, that's showing that their rate hikes did not have as much of an effect at slowing down inflation (by slowing the economy), as they had thought. (Or at least it has not shown up yet given that economic effects typically lag monetary policy by 6 months or more.)
That's was one of the reasons why they paused in September, but will likely hike again by year's end as growth continues to beat expectations.
None of this should have come as a surprise, even though the market is acting as if it was.
In other news, Weekly Jobless Claims fell by -20,000 to 201,000 vs. the consensus for 225K.
The Philadelphia Fed Manufacturing Index declined to -13.5 vs. last month's 12 and views for 0.5.
Existing Home Sales came in at 4.04 million units (annualized) vs. last month's 4.07M and estimates for 4.10M. On a m/m basis, existing home sales are down -0.7%. And on a y/y basis, they are down -15.3%.
And Leading Indicators were down -0.4% m/m, which is a bit more than last month's pace of -0.3% and views for the same.
Today we'll get the PMI Composite report, and the Baker Hughes Rig Count report.
Today also marks the eighth day of the UAW strike. And it's an important marker in that the UAW has said they would expand their strike if "serious progress" isn't made by the 12 noon ET on Friday.
And for those watching the budget talks, we have 9 more days to get a deal done by the end of the month to avoid a government shutdown.
While there's still time for the market to turn things around and get into the plus column by month's end, the odds continue to decrease the longer we stay at these low levels.
But as I mentioned yesterday, 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%).
The current pullback is no fun to sit through. But for those looking to buy the dip, it's a blessing in disguise.
Executive Vice President, Zacks Investment Research
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