Fed Week.
Robert R. Fragnito
Chief Operating Officer | Financial Advisor | Portfolio Manager at MCF Capital Management, LLC
U.S. stocks finished flat on Monday as investors awaited Wednesday’s Federal Reserve interest rate decision. ???
PLEASE NOTE: Daily Market Commentary will publish sporadically this week due to schedule constraints; we appreciate your understanding and will be back to our normal schedule mid-next week.
Stocks struggled for direction on Monday but managed to land slightly in positive territory, ebbing up and down the zero line ahead of a big week of monetary policy decisions across the globe. The U.S. Federal Reserve is not expected to raise rates on Wednesday, while forecasters see the Bank of England raising rates by 25 bps on Thursday, and the Bank of Japan is expected to keep policy unchanged on Friday. ??
On the bond front, U.S. Treasury yields were mixed across the curve, as traders continued to digest last week’s strong economic data and its impact on the future path of interest rates. The Fed-sensitive 2-year yield rose by 3.2 basis points to 5.062%, while the closely followed 10-year yield finished marginally lower at 4.318%.
Economic data was relatively light on Monday but featured a drop in home builder confidence for September, reflecting the lowest level in five months as high mortgage rates put pressure on buyer demand.?
In the energy complex, oil futures added to their 2023 highs on Monday as WTI crude settled up 0.8% to $91.48 per barrel on NYMEX. Worries over tightening supply continued to mount, along with higher energy prices putting upward pressure on inflation.
In Other Markets:
Last Week: Dow Jones +0.1%, S&P 500 -0.2%, Nasdaq -0.4%. The Nasdaq and S&P 500 ended with two straight weeks of losses. ?
Looking Ahead
It’s all about the Fed. Investors had mixed feelings on Monday ahead of Wednesday’s big Fed decision. So far, fed funds futures traders have resolved that the Federal Reserve will keep rates unchanged on Wednesday and foresee that rates won’t be going any higher until year-end. In fact, probabilities for a rate-cut are priced in for June 2024.
The totality of last week’s data, inflation gauges and retails, coupled with rising energy prices have presented a very precarious situation for the Federal Reserve. By our assessment, the central bank and Fed Chair Powell are going to have to tread very carefully this week as their credibility is very much on the line.
If we take the Fed’s rhetoric into account, economic data is steering the ship, and another rate hike should be in the mix. This could all change on Wednesday as investors await the summary of economic projections, which will provide insights into what monetary policy officials are thinking moving forward.
We have moved from being strategically defensive to neutral/slightly bearish as we feel the current risk-reward environment calls for caution and risk management.
Stay Tuned!?
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Source: Wells Fargo Investment Institute, “Looking Ahead,” September 15, 2023.
OUR FIRM
MCF Capital Management, LLC is an independent, family-run, financial advisory firm that manages investment portfolios for individuals and businesses through Quantitative Market Data Analysis.
THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INVESTMENT ADVICE.?
???SOURCES:?Refinitiv, Dow Jones NewsPlus, MarketWatch, Wall Street Journal, Barron’s, FinancialJuice, Investing .com, CNBC, Wells Fargo Investment Institute, TradingView