Market Brief: There is good news in the Fed rate hike

The first four months of 2022 have been very difficult for investors. Stocks and bonds are taking big losses, in large part due to the Fed’s shift to a much bolder path of raising interest rates to cool the economy and control inflation.

The Central Bank’s Federal Open Market Committee will hold its next meeting next week. Federal Reserve Chairman Jerome Powell has indicated that a 0.50 percentage point increase in the federal funds rate is a possible outcome. This type of movement is rare: It’s been 22 years since my last half-point lift. Bond futures are also indicating that a 0.75 percentage point increase may be on the way in June. The last time prices rose that much was in 1994.

While expectations for these kinds of sharp price increases have been responsible for the red in investors’ portfolios, it’s not entirely bad, says Ashish Shah, chief investment officer for public investment at Goldman Sachs Asset Management.

“Now we spent two years getting nothing for the money and you will finally start making money in cash in money market accounts and money market funds,” Shah says. While the talk is about how the Fed will raise the money rate, financial markets have outpaced the Fed by offering higher yields.

For example, two-year US Treasuries now yield 2.7%, and six-month US Treasuries are yielding 1.4%. Meanwhile, the 7-day average return on taxable money market funds is 0.13%, according to Morningstar Direct.

And with the Fed embarking on a strong series of interest rate increases, even cash accounts can make close to 2% in a few months. “By the end of the summer, the pricing environment will look completely different,” Shah says. “For people who have cash, it’s time to look at that money and ask the question of where to get the best rates.”

For the markets, one of the keys to next week’s FOMC meeting will be Powell’s assessment of inflation expectations. One worrying sign came on Friday with the release of the Fed’s preferred inflation indicator, the Commerce Department’s personal consumption expenditures price index. The report showed that consumer prices rose 6.6% in March from a year earlier, up from a revised 6.3% increase in February. The March increase was the fastest since January 1982.

Jan Nefrozi, a strategist at Natwest Markets, says a 0.5 percentage point funding rate increase appears to hold, as well as details from the Fed on how it plans to wind down its holdings of purchased bonds as a way to keep rates low and support the economy during the pandemic that has caused in stagnation.

But Nefrozi says the Fed’s future direction will depend on its confidence in inflation expectations. “How confident is Powell that inflation has peaked?” Says Nefrozi. And from there, how confident is the Fed that inflation will come down significantly by the end of the year? “If inflation does not end in the end, they will increase the pace of tightening even more.”

In addition to the FOMC meeting, the week will also bring the latest labor market reading, another factor in the Fed’s push to raise interest rates. The US economy is expected to add 375,000 jobs in April, which will follow an increase of 431,000 in March.

Scheduled events for the next week include:

  • Tuesday: Pfizer Inc (PFE) and Paramount (Barra) Earnings report. The Fed meeting begins.
  • Wednesday: Uber (Uber) and power transmission (Eastern time) Earnings report. The conclusion of the Federal Reserve meeting.
  • Thursday: marathon oil (MRO) Earnings report.
  • Friday: The Bureau of Labor Statistics releases employment data for April.

For the trading week ending April 29:

  • The Morningstar Index for the US market is down 3.32%.
  • The best performing sector was the basic materials sector, but it is still down 1.06%.
  • The worst performing sector was Cyclical Depreciation, down 6.59% and Real Estate 5.19%.
  • The 10-year US Treasury yield fell slightly to 2.89% from 2.90%.
  • Oil prices rose $2.62 to $104.69 a barrel.
  • Of the 868 listed US companies covered by Morningstar, 155 companies rose, or 18%, and 713 companies decreased, or 82%.

What are high stocks?

And Pinduoduo was the best performer last week (PDD)New Eastern for Education and Technology (EDU)TAL Education (TAL)JD.com (Dinar)and PTC (Public Telecommunications Corporation).

ADR-listed Chinese stocks surged after regulators prepared to slow their crackdown on technology companies, the Wall Street Journal reported. Pinduoduo shares, New Oriental Education & Technology, TAL Education, JD.com, Alibaba (Baba)and Baidu (Bido) Friday rallied in response.

Strong earnings results also lifted PTC and Sherwin-Williams (SHW)avent (AVT)and Mattel (mat). The newspaper reported that Mattel is in talks with private equity firms and may be acquired privately.

ID pads (FB) Stocks jumped despite posting mixed earnings results. The social media company reported that its revenue was lower than expected but that it saw an increase in the number of active users.

What stocks have fallen?

Teledoc Health was the worst performer last week (TDOC)bed bath behind (BBBY)Al-Nilam Pharmaceuticals (Alnie)technology alignment (ALGN)and Altice USA (atos).

Healthcare stocks led the losses, with Teledoc shares falling after the company cut its 2022 forecast, and both revenue and earnings per share (EPS) for the first quarter missed Wall Street estimates. Alnylam Pharmaceuticals and Align Technology also closed lower after losing revenue and EPS estimates.

Amazon (AMZN) It fell after the company reported losses for the first time in seven years. The online retail giant also issued lower-than-expected guidance for the second quarter.

Tesla (TSLA) Rejected after CEO and founder Elon Musk and Twitter (TWTR) We came to an agreement to make the social media company private. The deal is partially funded by a margin loan, which could force Musk to sell Tesla shares if its share price drops beyond a certain level.

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