Two major factors pushing the market lower of late and causing volatility are concerns over global growth – with more soft economic data out of China and Europe last week – and worry about interest rate hikes, with many believing the Federal Reserve is being too aggressive in raising rates. So, the market will be, even more than usual, focused on Fed action in the week ahead.
A two-day meeting of the Federal Open Market Committee begins tomorrow and concludes Wednesday with a press briefing by Chairman Powell. Expectations are for a quarter-point rate increase, which would be the fourth such move this year. According to the CME Group FedWatch Tool, there’s a 78.4% probability the Fed will hike this Wednesday. Should the Fed not raise rates, it is unclear how the stock market would react.
On the one hand, many investors would welcome a more accommodative Fed and be glad with the lower rates. On the other hand however, surprising the market by not hiking the ¼ point, would ignite worry with some market participants that the Fed sees a deteriorating economy – and that could spook the market. Of course, it is not only what the Fed does on Wednesday that matters, but even more important is what the Fed says is ahead.
Belief has grown the Federal Reserve will lower its forecast for future rate hikes and adopt a more neutral stance going forward, with the path of future rate hikes being “data dependent”. In our opinion, that tone, along with the ¼ point hike is the most likely outcome form the Fed meeting, but the situation is dynamic. Bottom line, “fed-watching” dominates the calendar this week! As always, please contact us with any questions or if you would like to set up a meeting.
All the best,
Southport Station Financial Management, LLC