The Fed has never raised the target interest rate four times in a row with a 75 basis point (bp) each time – until yesterday. They still need to beat inflation.
So the decision they harmed retail stocks, hurt consumers, and decreased real estate values.
On Tuesday, retailers heavily sold off, with the rest of the market. XRT declined 4% and crossed the 50-day moving average.
Retail was gaining strength and displaying demonstrated Triple Play momentum leadership and positive price action above until the Fed announced their news. This will put retailers and consumers under stress.
I will evaluate how the hike impacts consumer behavior by looking at XRT, will address elevated levels of consumer debt, and dig more into the components of CPI.
There is uncertainty about how effective these rate hikes reduce inflation since they are still far from 2%. The Economic data is mixed.
Corporate Earnings are holding steady for now; however, given the uncertain economic environment, investors should exercise risk governance.
Shelter comprises one-third of CPI, which was 6.6% last month. Rents will continue rising higher while food and energy remain elevated and are also large CPI weightings.
Mortgage rates have risen to 7% from 3.5%, making it impossible for some families to purchase property.
People who cannot afford to buy must live somewhere, which will continue to put pressure on rental prices.
Additionally, the US savings rate is also at 3%-the lowest in the last 15 years. Consumers are tapping savings aggressively, charging credit cards, running up debts, and all while real income growth stagnates.
Total consumer credit outstanding in the U.S. has hit record levels shown below.
Property owners are also accessing home equity credit at variable loan rates.
There is little evidence to support the Fed's claim that it is making major progress on fighting inflation.
ETF Summary
S&P 500 (SPY) 370 support and 377 resistance
Russell 2000 (IWM) 174 support and 181 resistance
Dow (DIA) 318 support and 324 resistance
Nasdaq (QQQ) 261 support and 269 resistance
KRE (Regional Banks) 62 support and 65 resistance; same as before
SMH (Semiconductors) 182 support and 189 resistance
IYT (Transportation) 204 support and 210 resistance
IBB (Biotechnology) 127 support and 132 first resistance; same as before
XRT (Retail) 61 support and 65 resistance; same as before