Unlikely to be ‘Fed Mode’ with persistently high inflation

• Analysts say stocks are likely to fall further in anticipation of another rate hike by the Federal Reserve.
• Investors had expected a more hawkish outlook for a rate hike after the strong September jobs report.
• One analyst said the stock market would “simply be collateral damage” in the fight against inflation.

Another massive rate hike from the inflation-fighting Federal Reserve is on the way and stocks are likely to take more hits in anticipation of such a move — but investors should put aside the notion that the Fed is looking to steer stocks away from sharp declines.

After the September jobs report, investors were seeking a more hawkish outlook on a possible Fed rate hike in November. The CME FedWatch Tool The probability of 82.3% showed an increase of 75 basis points, up from 75.2% the day before and up from 56.5% the week before.

“I think the Fed feels like it has the license to move forward aggressively to fight inflation,” Jan Szilagyi, CEO and co-founder of Toggle AI, an investment research firm, told Insider after the Labor Department released its jobs report on Friday. United State 263,000 new jobs created in September, beating the median estimate of 250,000. The unemployment rate fell to 3.5% from 3.7%.

US stocks fell after the jobs report. The Nasdaq Composite lost nearly 4% and Standard & Poor’s 500 He gave up nearly 3%.

“Today’s jobs report likely won’t change the calculations of the Fed in its fight against inflation, which is still on track to raise rates by another 75 basis points in early November,” Jason Pride, chief investment officer for private wealth at Glenmead, wrote in a note. .

Bank of America said Friday that the report could lead to new stock lows in 2022 this month.

The US stock market is already mired in a bear market, with the Nasdaq Composite down about 32% this year and the S&P 500 down more than 20%. The Fed has been aggressive in raising interest rates to cut inflation sitting near a four-decade high, which in turn has left stocks in the red.

“On a variety of metrics, I think there’s definitely still a downside especially because I don’t think there’s any sense that the Fed is trying to help the market. The Fed is focused on inflation, which is different from some of the other situations where you have an economic crisis or Financial crisis,” said Silaji, crushing the idea of ​​the so-called ‘Federal Reserve’.

The Fed’s position indicates the belief among investors that US central bank policy makers will enact policies aimed at helping stocks if they fall sharply and quickly to alarming levels. The market saw FedEx status in 1987, 2010, 2016, and 2018, according to Corporate Finance Institute.

Szilagyi said the “variety” bear markets dating back to the 1929 crash on Wall Street lasted 10-12 months and caused stocks to drop about 33%. The S&P 500 in the current downturn is off about 24% since the start of the year.

“I don “t think so [Fed policy makers] I think the market has gone down so much that they now suddenly need to pivot. “Back in 2018, when the market reacted so badly to the prospect of a potential tightening, they really took the market into account. But that was when inflation wasn’t an issue. I think you are now in a completely reverse situation where suddenly inflation becomes a problem and the market is simply going to be collateral damage.”

Szilagyi also said that stocks appeared to be lower on Friday as investors erased the idea that signs of potential stress in financial systems would prompt the Federal Reserve to back down on interest rate moves, including concerns about the health of Swiss lender Credit Suisse And the Bank of England An emergency intervention of £65 billion in the bond market.

“That glimmer of hope there may be a bit of a pivot – nothing close to actual monetary policy easing is priced in. We are retesting June lows, which is something we will probably eventually need to do anyway if there is hope for a lower low. big on the market.

The September inflation report is due on Thursday for an update The headline reading for August came in at 8.3%.. The Federal Reserve is expected to raise interest rates for the sixth time at its November 1-2 meeting to push the federal funds rate from the current range of 3% to 3.25%. The Federal Reserve raised its benchmark interest rate by 75 basis points in its past three meetings.