The Stock Market: It’s Still About The Fed

Financial volatility

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Like it or not, when it comes to the stock market today, it still ultimately comes down to what the Federal Reserve will do.

Read the write-up about the event at stock market this week, or, last week, and you get a hint that the performance of financial institutions was behind the growth of the stock market this week, or, that GDP growth in the third quarter was better than expected announced that the economy is doing better than many expected.

But, after these reasons are given, attention turns to the Federal Reserve.

The Federal Reserve has a meeting of the Federal Open Market Committee, the Fed’s policymaking body, on November 1 and 2.

Almost everyone expects the FOMC to raise interest rates by 75 basis points, bringing the effective Federal Funds rate up to 3.83 percent.

The big debate right now?

What the Federal Reserve will do at the FOMC meeting in December.

People were expecting another 75-basis rate hike, but, word was around last week that the Fed might raise its policy rate by just 50 basis points.

This means that after five consecutive 75 basis point increases, the Fed will hold back from such aggressive action at each meeting.

As the word spreads through the investment community, a group of “investors” talk about a “pivot” in Federal Reserve monetary policy.

Actions like this, for many investors, are seen as “major” corrections like this.

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There is no proof of this. There is no specific requirement for such a “pivot”.

In my reading of the market, the trial of investors is the trial of Fed Chairman Jerome Powell.

Chairman Powell has led the Federal Reserve through the spread of the Covid-19 pandemic, the subsequent economic downturn, supply chain issues, and other turbulent sectors or markets.

But, Mr. Powell has always led in a way where the Fed has erred on the side of monetary easing.

This is one reason why many people believe that the Fed’s plan to stop inflation does not remove nearly as much liquidity as Mr. Powell and the Fed in the economy in 2020 and 2021.

But, this attitude led to the realization that Mr. Powell will lead the Fed to err on the side of monetary easing as the Fed works to “tighten” the monetary leash.

That is, for whatever reason, Mr. Powell wanted to make sure the economy didn’t suddenly “collapse” because he didn’t pump enough money into the banking system while trying to prevent a financial collapse and lead to the economy will return there. recovery.

In this regard, Mr. Powell is concerned that he may be taking too much money out of the banking system, subjecting it to an unintended shock that will send the financial system and the economy on a downward spiral toward currency collapse. .

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That is, Mr. Powell wants to avoid being responsible for the real economic disaster. He knew he was going into that territory, and he didn’t want to be the one on the receiving end of bad news.

Ultimately, I think many analysts and investors feel this fear in President Powell.

And, therefore, these analysts and investors, in this situation, are looking for an opportunity for Mr. Powell to “get active”. They are looking for the moment when they say, “Enough is enough.”

But, such an “early” decision allows the Fed and the economy not to stop the inflation that exists today in the United States.

And, as inflation spreads, the United States now faces double the cost of imports from England, Europe, and many other parts of the world.

So, what has been achieved this year.

The Standard & Poor’s 500 Stock Index is a good proxy for any measure.

On January 3, 2022, the S&P 500 closed at an all-time high of 4,796.56.

S&P 500

Standard & Poor’s STock 500 Index (Federal Reserve)

On October 12, the S&P 500 closed at an all-time low of 3,577.03.

This shows a decrease of 25.4 percent holding the index in “Bear country”.

Since then, the index has rallied slightly and is up since Oct. 12, reaching a high of 3,901.06 on Friday, Oct. 28, up 9.1 percent from the Oct. 12 low.

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S&P 500

Standard & Poor’s 500 Stock Index (Federal Reserve)

Note that the chart does not include the 94-point increase that took place on Friday, October 28.

Therefore, the stock market offers little volatility in the short term.

And, you can look at the performance of the index going back to January 3, 2022, and see how the market has changed this year.

But, avoiding all this confusion is that the least of this confusion can be attributed to “real” economic reasons.

The turmoil comes as the investment community scrutinizes the actions of Mr. Powell and other Federal Reserve leaders and swings between sentiments that Mr. Powell will “derail.” ‘stick to your guns’ and keep your foot on the brake.

This behavior seems to me to be driving the stock market this year.

The Federal Reserve raised interest rates on March 16 and began reducing the size of its securities portfolio at that time.

My report indicated that the Fed has continued since then, raising interest rates and further reducing the size of its securities portfolio, and has not taken any action to suggest it is “backing off” on monetary tightening.

However, the market is quite volatile. Analysts and investors continue to believe that the Fed will “pivot”.

That’s why the stock market is doing well right now. All other “stuff” is just white noise.

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