Home About Archives RSS Feed

@theMarket: Fed's 'Higher for Longer' Message Disappoints

By Bill SchmickiBerkshires columnist
The financial markets were expecting a lot of good news out of the Federal Open Market Committee meeting this week. Investors were betting that not only would the Fed pause, but possibly announce an end of interest rate hikes altogether. Some even expected a timetable for future rate cuts that would be sooner than later.
The market was right on the pause in interest rate hikes. The U.S. central bank decided not to hike the Fed funds rate but that was about the extent of the good news. In his Q&A session after the meeting, Chair Jerome Powell reiterated his message that further rate hikes were still on the table, but they would proceed "carefully." They have already raised rates 12 times over 17 months. He also left the audience with an expectation that there would be at least one more interest rate hike, if not two, this year.
In addition, the dot plot chart, which represents Fed members' expectations for future changes in interest rates indicated that most members had backed off from a prospective four cuts next year to only two, maybe. Most thought an interest cut would not occur until sometime in the latter part of 2024 — if then. Part of the problem, Powell said, was the continuing strength in the U.S. economy, which is performing far better than fed officials expected.
When everyone is on one side of the boat (as they were before the meeting), the risk is that a disappointment could capsize the boat. That was what exactly happened as Powell came out much more hawkish than anyone expected. Traders pulled the plug on bullish trades driving the main averages down by more than 1 percent and followed through on Thursday with similar losses.
In the bond market, the thinking was just as dire. If interest rates were going to stay higher for longer than yields needed to adjust to reflect that new reality. 
Traders sold bonds across the board sending yields to 15-year highs. The yield on the 10-year, U.S. Treasury bond spiked to 4.6 percent, which sent the dollar higher and equities lower.
Technology was the hardest hit, but few sectors escaped the selling. Sectors that have an inverse correlation with the dollar, such as precious metals, and materials. etc., were dumped and speculative stocks took it on the chin.  Energy was one of the few bright spots with oil prices holding up in the $90/bb. range. However, higher oil prices only complicate the Fed's work. As I wrote last week, higher energy prices fuel higher inflation and the longer it stays at this level, the harder the Fed's job becomes in reducing inflation.
Several negative short-term events are adding to the pessimistic attitude of investors. The UAW strike, which threatens to expand, could dent economic growth. The looming government shutdown, caused by the chaotic atmosphere within the Republican party, does not inspire buyers either. The sharp climb in bond yields has also tempted more investors to seek safety.
The Fed's hawkish stance ruined my hopes for a bounce this week, and we are still in a weak seasonal period. I warned readers this is historically a negative time for the markets. I had expected that the SP 500 Index would at least re-test the August lows and that did occur this week (the intra-day low for that index was 4,335). Right now, the S&P 500 Index is oversold, more so than at any other time this year.
A relief rally on Friday was to be expected. It seemed anemic to me but could continue into next week. I advise readers to remain cautious for now and most likely into mid-October. There could be further downside, especially if we see yields and the dollar move higher.

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.



Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Pittsfield's Thistle & Mirth Moving Ramen Menu to Sister Eatery
North Adams City Council Sets Fiscal 2024 Tax Rate
Clarksburg VFW Welcomes Santa, Presents Donations
Simon's Rock to Host Annual Craft Fair
Lanesborough Select Board OKs Single Tax Rate
BHS Announces North Adams Regional Hospital Leadership
Can You Make Charitable Giving Less 'Taxing?'
MCLA Receives Grant to Fund Mental Health Support
Pittsfield Sets Session on West Side Zoning
Clark Art Lecture on Rerouting Indian Modernism

@theMarket (464)
Independent Investor (451)
Retired Investor (168)
November 2023 (4)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
March 2023 (8)
February 2023 (8)
January 2023 (6)
December 2022 (7)
Europe Europe Interest Rates Euro Economy Commodities Stocks Fiscal Cliff Japan Deficit Greece Banking Congress Oil Stimulus Retirement Currency Jobs Metals Rally Election Taxes Recession Debt Employment Pullback Debt Ceiling Federal Reserve Selloff Energy Stock Market Bailout Banks Crisis Markets
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Bonds, Stocks Should Consolidate After Epic Run
The Retired Investor: The Gap in Home Health-Care Workers
@theMarket: Bonds Get Lift & Stocks Rally Along With Them
The Retired Investor: America Is Living Beyond Its Means
@theMarket: Markets Down, Economy Up, What Gives?
The Retired Investor: Halloween Spending Expected to Hit a Record
@theMarket: If Bond Yields Continue Climb, Stocks Will Fall
The Retired Investor: Primary Care Changing as Doctors Disappear
The Retired Investor: Four-Day Workweek
@theMarket: Are Stocks Close to a Bottom?