U.S. Federal Reserve Chairman Jerome Powell speaks during a Senate Banking Committee hearing Thursday, July 15, 2021 in Washington, DC, United States.
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The much-anticipated Federal Reserve meeting over the coming week may not be as exciting for the markets as some investors expected during the normal month of September.
The meeting is the highlight of the coming week, traditionally a negative time for stocks. The stock was down slightly last week, with the exception of small cap Russell 2000, which ended the week up 0.4%.
Central bank officials begin the meeting on Tuesday and end their two-day session with an announcement Wednesday afternoon, which is followed by a press briefing with Fed Chairman Jerome Powell.
The economic calendar is light and contains mainly housing data, as of Tuesday and with permits; Current home sales on Wednesday and new home sales on Friday. A handful of companies report profits, including Costco Wholesale, FedEx, and Nike.
The Fed meeting might not be as eventful as investors once hoped. Some strategists expect the central bank’s withdrawal from its bond buying program to cause turmoil for stocks. But the Fed may not discuss the cut until an upcoming meeting, and with most signs it could slow bond buying later in the year.
“In my opinion, they are very clear on the reduction guidelines. I think they get an “A plus” when they communicate their intentions regarding the balance sheet, ”said Michelle Meyer, head of the US economy at Bank of America. “They said they wanted to take baby steps and they did.” She expects an announcement in November and actual reductions in bond purchases before the end of the year.
Winding up a $ 120 billion-per-month bond buying program is important because it will be the important first step in moving away from the extraordinary policies used by the Fed to fight the pandemic. It also brings the Fed closer to raising interest rates.
credit limit risk
Jim Caron, Head of Global Macro Strategy, said: “Everyone is calling for a correction, and it’s always hard to see what the catalyst could be. The catalysts for the recovery are just as clear today as they have been over the years. ”Morgan Stanley Investment Management.
For now, Caron considers the Fed’s communication over the coming week to be less risky for the markets than other hot issues, such as debt limits, the potential for tax hikes, and the uncertainty around the White House infrastructure bill. .
Congress has some time in October to extend the debt limit before the government leaves the fund and defaults. The political rhetoric around raising the debt limit, which would allow the Treasury to issue more debt, is growing. The White House warned on Friday that the economy could enter a recession if Congress does not act.
“I think the Fed wants to stay out of the fight at this point. There’s a lot of ambiguity right now, ”Caron said. “… They’re not going to announce the recording. Their statement will be carefully drafted. The bar is really high for them to say anything right now. Until the next meeting, we’ve got a pretty good idea. R 21; It should be about the credit limit and the condition of the infrastructure. “
what can the fed do
The Fed’s September speed cut announcement fell sharply after a weaker-than-expected employment report in August showed just 235,000 jobs created, nearly 500,000 fewer provided that.
Economists now mainly expect an announcement in November, but the September meeting could be crucial for what the Fed says.
The quarterly forecast from Fed officials was released with a 2 p.m. statement on Wednesday. These include new economic projections and an updated forecast of interest rates.
“I don’t think they want to say anything, which is a bit sharp, but the scorecard could come out that way,” Caron said. The dot plot is the Fed’s interest rate forecast, an anonymous interest rate target by Fed officials presented in graph form.
Some Fed watchers expect the central bank to raise its interest rate forecast slightly. In June, the dot plot showed two rate hikes for 2023 and none for 2022.
“It’s two Fed officials getting a half increase and it’s three Fed officials getting a full increase for 2022,” Meyer said. “I think the dots will show that the first increase is in 2023, but it’s possible that will change… I think if that changes, the Fed will have a hard time communicating the difference.”
Meyer said Powell pointed out that the wind of the asset purchase program is unrelated to the Fed’s decision to raise interest rates from current zero levels. If interest rate forecasts advance, it could suggest to the market that the Fed will end its bond program and immediately move on to rate hikes. The bond program is expected to gradually recover over a period of six months or more.
The major indices ended last week on a marginal decline. For the week, the S&P 500 was down 0.6% to 4,432, while the Dow was down 0.1%, almost flat. The Nasdaq only half a percent, at 15,043. The 10-year Treasury yield rose 1.37% on the week.
September has so far been a weak month for the stock market as a whole, with an S&P down just under 2%.
However, JPMorgan’s technical strategists are not expecting the steep drop some analysts are expecting.
He notes that so far the S&P 500 has remained above the trend support level of 4,420 to 4,435 and another key level of 4,367.
“As a basic approach, we believe the index holds this support and rallies in the fourth quarter. Even if the market breaks out of support and sees a near-term increase in actual volatility, we will continue to see the Daylight Saving Time 4238-4257. “The breakout zone will place a floor below the index,” the strategists wrote.
Investors continue to keep an eye out for earnings warnings ahead of the third quarter reporting season which begins in mid-October. Worryingly, supply chain risks will continue to squeeze revenues and could hurt margins.
Some companies are reporting in the coming week and are expected to comment on the supply chain and rising costs. FedEx reported Tuesday; General Mills released its results Wednesday, and Nike and Costco both released Thursday.
Nike is being watched closely as supply chain issues are expected to hurt its profits and it may continue to have problems selling products.
upcoming week calendar
10:00 a.m. NAHB survey
Earnings: FedEx, Adobe, AutoZone, Cracker Barrel, Aurora Cannabis, Stitch Fix
Two-day FOMC meeting begins
8:30 am Start of accommodation
8:30 a.m. Current account
Earnings: General Mills, KB Home, Blackberry, Steaks
10:00 a.m. Current home sales
Federal Reserve statement at 2:00 p.m.
2:30 p.m. Briefing by Fed Chairman Jerome Powell
Earnings: Nike, Costco, Vail Resorts, Trip.com, Darden Restaurants, Accenture, Rite Aid, Scholastic
08:30 am Weekly unemployment claims
9:45 a.m. Manufacturing PMI
PMI services at 9.45 a.m.
10:00 a.m. Leading indicator
8:45 a.m. Loretta Meester, President of the Cleveland Fed
10:00 am Sale of new homes
10:00 a.m. Fed Chairman Jerome Powell Vice President Richard Clarida Fed Governor Michelle Bowman at the Fed licensing event
10:00 a.m. Esther George, President of the Kansas City Fed