Stocks Soared On Friday, And For The Week  Image: Bigstock Stocks soared on Friday. And all of the indexes closed sharply higher for the week with the Dow up 2.66%, the S&P up 3.65%, the Nasdaq up 4.14%, and the small-cap Russell 2000 up 4.04%! All week long, a parade of Fed officials, including Fed Chair Jerome Powell on Thursday, remarked how the Fed was committed to tackling inflation. And the market cheered the news. Simply put, high inflation is far worse for the economy than higher interest rates. Earlier in the year, many doubted the Fed's resolve. But after two back-to-back 75 basis point hikes (225 basis points in all, so far, in 2022), and continuous reassurances that they will "keep at it until the job is done," the market is finally starting to believe it. Currently, the market has placed a 90% chance of another 75 basis point hike when they meet again on September 20-21. With the midpoint for the Fed Funds rate currently at 2.38%, another 75 bps would put the midpoint at 3.13%. And with the Fed previously saying they see the target rate getting to 3-3.5% by year's end, and other members recently saying they see it getting above 4% by early next year, they still have more to go. After September's FOMC meeting, there's another one in November, then December, and then the first one in 2023 is February. So it looks like they will keep raising until then. Especially given Powell's comments last week, saying that "history cautions strongly against prematurely loosening policy." But at the same time, Mr. Powell reiterated that the Fed's goal is to achieve a "soft landing." And with a robust jobs market, strong consumer demand, positive GDP forecasts for the second half of the year (Q3 right now is estimated to come in at 1.3%, which is way better than Q2's -0.6% and Q1's -1.6%), and evidence that peak inflation is behind us, there's plenty of reason to believe that we can head much higher from here. In the meantime, stocks are well off their June lows with the Dow up 7.43%, the S&P up 10.9%, the Nasdaq up 13.8%, and the Russell 2000 up 14.1%. We are still down double digits from the highs, but that just means we have plenty of ground to make up. When stocks fell in the first half of the year, everybody was expecting the worst. And sure enough, GDP fell for two quarters in a row. But now the forecast is all growth. And it's hard to make a case for retesting the June lows when the outlook is markedly better than where we were. That includes lower inflation readings, lower oil and gas prices, and higher GDP estimates. And that should lead to higher stock prices. I'm reminded of the comparison that was made between the first half of this year, and the first half of 1970. This year's first half performance (down nearly -21%), was strikingly similar to that of 1970 (also down -21%). And in both periods, high inflation was an issue. But in the second half of 1970, the S&P was up 27%. Of course, that doesn't mean that's how it'll go for the back half of this year. But it doesn't mean it won't either. And so far, it looks like we could very well be heading in that direction. So make sure you take full advantage of it. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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