Pivotal Fed moment

Good morning, team. Phil Rosen here, writing to you not far from the Federal Reserve building in New York.?

With inflation still soaring above the Fed's 2% target, central bankers today are expected to stay vigilant in their inflation battle in making a fourth consecutive 75 basis-point move.?

That would bring the benchmark rate into the 3.75%-4% range.??

But that's not what's notable. Traders have largely priced in a move of that size.

Impress your boss at the water cooler not by talking about what Jerome Powell could do today, but by weighing the odds of what he could do a month from now.??

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1. Wall Street's top strategist thinks the Fed will end its tightening campaign sooner than later. Market guru Mike Wilson kicked off this week by telling investors to anticipate a stock rally because the central bank's about to ease up on interest rates.?

In a Monday note from Morgan Stanley, Wilson pointed out the recent inversion of the 3-month and 10-year US Treasury yield curves as reason to support a Fed pivot.?

Wilson sees a 6.4% upside for the S&P 500, in part because the major indexes closed last week in the green despite horrendous earnings coming out of Big Tech.

Yesterday, JPMorgan's trading desk echoed Wilson's optimism but under slightly different circumstances. Should policymakers opt for a surprising, smaller move of 50 basis points at the end of today's meeting, investors should gear up for the S&P 500 to soar as much as 10%.

Stocks could jump if the Fed shows its taking the foot off the gas, the analysts said, and a double-digit rally would have markets testing its previous record one-day surge last seen in 2008.

But JPMorgan's upbeat outlook didn't quite seem to make it over to Wall Street rival Goldman Sachs. That bank thinks the Fed is going to skirt any talk of a pivot, and opt for continued rate hikes albeit at a slower pace.

The December meeting, Goldman strategists said Tuesday, will feature a 50-basis-point move that won't signal anything near the end of the tightening cycle.

"We are adding another 25bp hike to our own forecast — which now calls for hikes of 75bp in November, 50bp in December, 25bp in February, and 25bp in March — and now see the funds rate peaking at 4.75-5%," analysts said.

Goldman Sachs listed three reasons the Fed will carry on with rate hikes:

1. US inflation will remain "sticky" so a pivot won't be justified.
2. A surging labor market and rising wages means the Fed will have to keep hiking rates.
3. Keeping rate hikes going until March 2023 will set up the central bank for a future pivot.?

Keep an eye out for the Fed's official announcement at 2:00 p.m ET.

When does the fed pivot or pause its rate hikes?

A) At today's meeting

B) At the December meeting

C) In Q1 2023

D) In Q2 2023 or beyond

Let us know in the comments.

In other news:

2. ?Goldman Sachs shared which stocks are boosting shareholder turns right now. These names have been aggressively buying back their shares, even as a recession gets more likely. See the list of 20 companies.

3. A Wall Street expert explains his "Holy Trinity" portfolio of three key investments. Together, those picks are up 5% this year compared to the S&P 500's 19% loss. With inflation, recession, and rising rates looming, Vincent Deluard recommended his strategy as a way to keep beating obstacles in the market.

4. Jeremy Grantham's firm said it's time to buy into small-cap stocks. Despite the slowing economy, the legendary investor's company is turning away from big names. Here are the themes and companies that GMO is most bullish on.?

5. Employers are still eager to hire, and they don't want to let their workers go.?Job openings in September hit 10.7 million, according to data released yesterday.?That beat the median estimate of 10 million, and shows that despite the odds, the Great Resignation continues.

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This newsletter was curated by Phil Rosen.