Markets Focus on the Fed

What is it?

So far this year investors have been calling the Fed’s bluff of keeping rates higher for longer. However, the Fed may not be bluffing as they continue to hold that stance.* Some inflation data has subsided but not down to the long term goal levels that the Fed has in mind. So really, inflation has continued on above the Fed’s target rate after the rapid rise in prices last year. Also, employment data has shown resilience while it is not as good as it was before the Fed raised interest rates. 

Why does it matter?

“Fed Chair Jerome Powell has once again reinforced the “higher for longer” mantra that has underpinned most of his, and his officials’, communications this year, no matter how much market participants have bet otherwise.”*

So the end may be near, but not inherently as near as some investors believe. Whatever the Fed decides could impact the markets especially if they do so in a surprising way. There is currently “anticipation of at least one more Fed rate hike before 2023 draws to a close.”*

Global Growth may Slow Down

What is it?

After flooding the economy with money and low interest rates, places across the world tried to gauge when that free money would be paid for. It may come back to hit the working class as businesses prepared for these changes ahead of time. The U.S. is not alone in this interconnected global economy. 

Why does it matter?

Inflation of prices may be a reason for revenue growth as companies struggle to grow when adjusted for inflation. The government helped many people with low income early on, but that money just pushed inflation higher. Soon the economy may feel the contraction imposed by the economic tools of the Fed or taxes. That could mean less variable spending as wages struggle to keep up with spending. Many people may need to adjust their budgets with student loans and other costs coming back into play coupled with higher interest rates. If inflation really does get tamed then economic growth could be in for a rude awakening that shows not much growth has taken place. If that is true for companies then their investors could be wary of the possible downside impacting their performance. We will continue to analyze what parts of the world are outperforming others in the stock market. 

Other articles we found interesting this week:

Goldman strikes deal to sell unit that offers financial advice to the masses

US Dollar pulls away from multi-month highs to start critical data week

How China’s Debt Problem Could Trigger a Financial Crisis

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Our last 401(k) portfolio reallocation: 8/14/2023. 

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Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.

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Sources:

*Amanda Cooper. “Powell signals no retreat, no surrender”. Reuters. 8/28/2023. https://www.reuters.com/markets/us/global-markets-view-usa-pix-2023-08-28/

**Howard Schneider. “Post-pandemic, world facing gloomy stew of debt, trade wars and poor productivity”. Reuters. 8/28/2023. https://www.reuters.com/business/post-pandemic-world-facing-gloomy-stew-debt-trade-wars-poor-productivity-2023-08-28/

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