The Fed is Going After All, but What Will We Do in the Future? An Analysis of Dimon’s Take on the Economic Puzzle of the United States and Europe
The Federal Reserve was expected to deliver a hike in interest rates next month as fresh data about the labor market gave investors good reason to sell their stock.
The S&P 500 fell nearly 3 percent on Friday, dragged down by interest rate-sensitive sectors like technology stocks. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
The Labor Department said American employers added 263,000 jobs in September, which was down from 315,000 in August. The unemployment rate fell to 3.5 percent because of the Fed’s efforts to cool the economy and reduce inflation but there was still a sense of strength in the labor market.
It is good news for investors that the labor market is strong at the moment, but it is bad news that it shows the need for more Fed rate hikes. Higher rates, in turn, raise costs for companies, weighing on stock prices.
“You can’t talk about the economy without talking about stuff in the future…and this is serious stuff,” Dimon said in the CNBC interview. He added that he thinks Europe is in a recession already and that the US is probably next.
The Dow Jones Stocks Slidden on Thursday, and the Wall Market is Back to Its Pedestrian State: Fed Policy Challenges in the Real Estate Market
Shares of JPMorgan Chase
(JPM), which is one of the 30 stocks in the Dow, were down nearly 1%. Several big banks will be reporting earnings on Friday.
Stocks have tumbled this year due to worries about inflation and how the Federal Reserve’s aggressive interest rate hikes to fight surging prices may eventually lead to a recession. Stocks soared early last week, leading to hopes that the market had bottomed.
But sellers have returned with a vengeance in the past few days. Friday’s mostly solid jobs report did little to dispel fears about more big rate hikes from the Fed.
A worse than expected retail sales report sent stock markets plunging on Thursday, compounding fears about those dour Fed forecasts. The worst day for the index this year was Thursday, when it lost 2.5%. The S&P 500 lost 2.5% and the Nasdaq tumbled 3.2%, their worst days in a month.
The bond market was closed Monday, but the 10-year Treasury is currently yielding around 3.89%. The 10-year yield hit its highest level since October 2008 late last month and briefly topped 4%.
Fed vice chair Lael Brainard alluded to challenges in the housing market in a speech Monday. Brainard noted that monetary policy tightening is only partly realized so far, and that tighter policy is most evident in highly interest sensitive sectors like housing.
Brainard also warned that “in other sectors, lags in transmission mean that policy actions to date will have their full effect on activity in coming quarters.” The rest of the economy may soon slow.
Stock Market Recoil After Another Hot Inflationary Reading: The U.S. Economy and General Relativity Revisited
Markets plunged on Thursday, as investors recoiled from another hotter-than-expected inflation reading that cemented expectations for another bumper interest rate increase from the Federal Reserve next month.
U.S. government bond yields, which serve as benchmarks for borrowing costs and are influenced by Fed moves, jumped. The two-year Treasury yield soared 0.15 percentage points, a big move for an asset that typically moves in hundredths of a percentage point.
The Consumer Price Index report for September showed that inflation grew for the second month in a row.
The sell-off has been broad, only 12 companies in the S&P 500 are trading in the green. The real estate and energy sectors have been hit the hardest.
Moody’s Analytics has lowered its estimate for America’s economy growth in the fourth quarter to 1.9% from 2.7%. Moodys lowered their GDP forecast to just 0.9% because of the weak manufacturing and retail reports.
Wall Street Sentiment Can Change Today: Dow Fluctuations, Oil Markets, and Wall Street Decay Since The First Presidential Inflation
Sentiment on Wall Street can change on a dime, and this week is clear evidence of that: The Dow has tumbled about 1,300 points since the Fed’s policy update at 2 p.m. ET Wednesday. It is December and not helping stocks. Volume is low as many traders are on vacation.
Meta and Adobe are the largest gainers in the markets today. Adobe shares soared after the company reported better-than-expected quarterly earnings and guidance. The company has been down a great deal since the beginning of the year but it saw a boost after the upgrade by JP Morgan.
The worst is over for the stock market, in my opinion. The Federal Reserve is expected to stop raising interest rates soon and there will be no recession this year.
The market is expected to be moving higher by the end of the year. Not that the market will come roaring back. It will not happen. It’s not the place for investors to time its recovery. Considering how quickly the market moves, they can’t.
The stock market fell sharply after hitting an all-time high on the first day of the year. By early summer, it was down more than 20% — the informal definition of a bear market. Stocks have traded more or less sideways ever since, up some weeks and down others.
Tech stocks for companies like Facebook and Google have taken the biggest hit from the runup in interest rates. That is because investors expected huge profits from these companies long into the future. The future earnings are worth less today due to higher interest rates.
Stock prices will remain more or less stuck until it is clear the Fed is done raising interest rates. And that, in turn, depends on inflation. The Fed is going to keep raising rates until it is certain that inflation is under control. That is expected to happen as soon as this spring.
Oil prices are back to where they were before Russia invaded Ukraine. The global oil market adjusted well to the sanctions imposed on Russian oil. With gasoline prices dropping, closing in on $3 a gallon, workers are less worried about future inflation and should soon scale back their demands for higher wages. The price increases in labor-intensive services such as health care should moderate.
supply chains will be normalized after China ends its zero- Covid policy, which was the first sign of the virus. The prices of building materials and vehicles will go down. The sudden change in policy has caused a lot of sick workers but China should be back to normal by the spring.
The Implications of a Low-Interest-Rate Mortgage Reimbursement Rate for Consumer Behavior and the Taxpayer’s Choice
Many households did a good job of locking in the historically low interest rates by reissuing their mortgages. Those that did are now insulated from the higher rates. Consumers need to spend as usual to avoid a recession. There is no reason to think they won’t.