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Profit from the Pros By Kevin Matras Executive Vice President
Stocks Down On Friday And For The Week, Busy Week In Store For The Market This Week
Stocks closed lower on Friday and for the week, making it 3 down weeks in a row for the S&P 500 and Nasdaq.
Last Wednesday's FOMC announcement when the Fed expressed the likelihood of one more rate hike this year, along with fewer rate cuts next year, weighed on stocks.
While inflation has come down from last year's highs, it has proven to be stickier than expected. And the Fed does not expect to see their target rate of 2% achieved until 2025.
Moreover, with the Fed Funds rate expected to reach 5.6% by year's end, they revised their Fed Funds estimate for next year to 5.1% vs. their previous forecast of 4.6%, which implies just a 50 basis point rate cut next year vs. the anticipated 100 bps rate cut.
While the Fed has been saying all year they expected rates to stay higher for longer, they drove that point home last week with their increased growth forecast, and next year's reduced rate cut forecast.
We'll get another look at inflation this week when the Personal Consumption Expenditures (PCE) index comes out on Friday, 9/29. That's the Fed's preferred inflation gauge.
Last month's PCE report showed both the headline number increasing from the previous month with the headline y/y rate coming in at 3.3% vs. the previous reading of 3.0%, while the core rate (ex-food & energy) was up 4.2% y/y vs. the previous month's 4.1%.
Friday's PCE report is expected to show a mixed bag with headline inflation up 0.5% m/m, and 3.5% y/y (which would be an increase from the last report's 3.3%). The core rate is expected to be up 0.2% m/m, but the y/y rate is expected to come it at 3.9%, which would be down from the last reported 4.2%.
But there's plenty of other reports to get thru first: today we'll get the Chicago Fed National Activity Index, and the Dallas Fed Manufacturing Survey. Tomorrow we'll get the Case-Shiller Home Price Index, New Home Sales, the Richmond Fed Manufacturing Index, and Consumer Confidence. On Wednesday we'll get MBA Mortgage Applications, Durable Goods Orders, and the State Street Investor Confidence Index. On Thursday its the third and final estimate for Q2 GDP, Weekly Jobless Claims, Pending Home Sales, the Kansas City Fed Manufacturing Index, and Corporate Profits. And on Friday, aside the PCE report, we'll get Retail and Wholesale Inventories, the Chicago PMI, and Consumer Sentiment.
A jam-packed week of reports.
Additionally, the market will be contending with the expanded UAW strike against GM and Stellantis after no "serious progress" was made last Friday. They have not expanded their work stoppage at Ford at the moment amid progress in talks. But that could change in the absence of a deal or further progress in negotiations.
We also have just 6 more days for Congress to get a budget deal done by the end of the month to avoid a government shutdown.
At the moment, stocks are underwater for the month.
But regardless of how it ends, the odds of a bullish rest of the year look considerably better. 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%).
Those are great odds.
And the end of September and the beginning of October can't come fast enough.
See you tomorrow,
Executive Vice President, Zacks Investment Research
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