Stocks Up After Fed Gets More Aggressive On Rates  Image: Shutterstock Stocks finished higher yesterday after the Fed raised interest rates by 75 basis points. While the Fed had been telegraphing 50 basis points for the June meeting, last week's CPI report, which showed inflation ticking higher (8.6% y/y for a 41-year high), rather than moderating, they decided to get more aggressive with a 75 basis point hike. And the door was left open for another 75 basis points at the July meeting. But for now, they are predicting at least three more 50 basis point increases and one 25 basis point increase by year's end, which would put the Fed Funds rate at 3.40%. They also see rates at 3.8% by the end of 2023. And oddly, they suggested they may cut rates by 25 basis points in 2024. Additionally, they made no changes to their scheduled balance sheet runoff. They also updated their inflation forecast, putting the PCE Index at 5.2% by the end of 2022, which is up from their previous estimate of 4.3%. But then they see inflation falling to 2.6% in 2023, and then 2.2% in 2024. As for growth, they see GDP at 1.7% for full-year 2022, which is down from their previous estimate of 2.8%. They also see GDP at 1.7% for 2023, then 1.9% for 2024. Aside from the extra 25 basis points, there weren't too many surprises out of yesterday's announcement or press conference. But we did get some additional clarity of what the target range could look like by year's end. And 3.4% (2022) differs quite a bit from the 1.9% they floated previously. Same for the 3.8% they put out there 2023 vs. their previous estimate for 2.8%.
The market responded positively to the news. But we will have to see if it has legs. Between now and July 27th (the next FOMC announcement on rates), all eyes will be on the upcoming CPI and PPI reports on inflation, and what Q2 GDP ended up at. Those data points will give big clues as to what the Fed's next move will be.
In the meantime, stocks have fallen quite a bit. And with over 1,450 stocks down by more than -50%,YTD, and over 500 stocks down by more than -70%, there's tons of bargains out there right now. Especially with valuations at the lowest levels in more than 2 years. And in spite of inflation, and fears of recession (we shall see), there's plenty of positives in the economy that have been virtually ignored during this sell-off, including a strong labor market (near 50-year low unemployment), strong household spending, strong business investment, and strong industrial production. And eventually, the market will have to take notice. Nonetheless, the S&P is officially in a bear market. But as the saying goes, there's a bull market somewhere. And there's opportunity to make money even in markets like this. If you know where to look. To learn where to look, and what to look for, so you can put the odds of success in your favor, be sure to read our latest commentary... With The S&P In A Bear Market, Read This Before Your Next Trade Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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