Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

Bull Market Rally Continues Despite Hawkish Fed: What to Do Now?

By Investing.com (Jesse Cohen)Stock MarketsJun 16, 2023 05:45AM ET
www.investing.com/analysis/bull-market-rally-continues-despite-hawkish-fed-what-to-do-now-200639099
Bull Market Rally Continues Despite Hawkish Fed: What to Do Now?
By Investing.com (Jesse Cohen)   |  Jun 16, 2023 05:45AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
NDX
-0.54%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US500
-0.17%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DJI
-0.06%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CVX
+0.14%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CSCO
-0.52%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MRK
-0.63%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Stocks on Wall Street extended their bull market rally this week despite hawkish signals from the Fed.
  • Investors are still fighting the Fed as Powell warned July meeting is 'live'.
  • As such, investors should brace for more sharp moves in the weeks ahead.
  • Looking for a helping hand in the market? Members of InvestingPro get exclusive ideas and guidance to navigate any climate. Learn More »

Stocks on Wall Street are on track to end the week with strong gains, with the S&P 500 and Nasdaq Composite both rallying to their best levels since August 2022 in the aftermath of the Federal Reserve policy decision.

The tech-heavy Nasdaq has been the best performer of the three major U.S. indices this year, surging 31.7% year-to-date.

That compares to an increase of 15.7% for the benchmark S&P 500 and a 4% gain for the blue-chip Dow Jones Industrial Average.

DOW, S&P 500, Nasdaq YTD Chart
DOW, S&P 500, Nasdaq YTD Chart

That said, there appears to be a growing risk that the Fed will raise rates to levels above where markets currently anticipate, resulting in a correction over the near term.

A ‘Hawkish Pause’

The Fed held off on raising interest rates on Wednesday for the first time since its historic campaign to cool inflation began in March 2022. Fed policymakers unanimously voted to keep the target range for the federal funds rate at 5% to 5.25%.

The pause followed 10 straight hikes in 15 months, including four outsized increases of 75 basis points last year, followed by a half-point increase and then three quarter-point hikes this year.

U.S. Interest Rates Long-Term Chart
U.S. Interest Rates Long-Term Chart

By skipping a rate hike in June, Jerome Powell and other top Fed officials hope to use the extra time to further assess how higher rates have affected inflation and the economy.

“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” the Fed’s post-meeting statement said.

More Rate Hikes on the Way

In a surprisingly hawkish twist, the Fed’s policymakers issued projections showing they foresee at least two more quarter-point rate hikes over the remaining four meetings this year.

According to the latest dot-plot, most FOMC members are now projecting the fed funds rate will peak at a new target range of 5.5%-5.75%, half a percentage point higher than when comparable forecasts were published in March.

Fed officials also predicted that the benchmark rate will stay higher for longer than they predicted three months ago.

“Nearly all committee participants view it as likely that some further rate increases will be appropriate this year,” Fed Chair Powell said in his post-meeting news conference.

He added:

“Inflation has moderated somewhat since the middle of last year, nonetheless, inflation pressures continue to run high and the process of getting inflation down to 2% has a long way to go.”

Powell noted that the July meeting will be a “live” one, sending a strong hint that the Fed will deliver a rate hike next month.

In my view, the statement sends a clear message: “We are not done yet.” As such, I expect the Fed to move by 25bps in July and then hike another 25bps in September.

Inflation Remains a Sticky Point

Inflation may be cooling — just not yet fast enough for the Federal Reserve.

U.S. consumer price inflation in May rose 4% from a year ago, the smallest annual increase since March 2021.

While inflation has fallen significantly from a peak annual rate of more than 9% last summer, it remains at a level double the Federal Reserve's target of 2%.

U.S. Consumer Price Inflation
U.S. Consumer Price Inflation

More worrying is that excluding volatile prices for energy and food, core inflation is still running at an exceptionally high level of 5.3%.

U.S. Core CPI
U.S. Core CPI

The core figure is closely watched by Fed officials who believe that it provides a more accurate assessment of the future direction of inflation.

"We understand that allowing inflation to get entrenched in the U.S. economy is the thing that we cannot allow to happen for the benefit of today's workers and families and businesses but also for the future," Powell stressed.

As such, the case to keep hiking remains strong.

Fed Rate Monitor Tool
Fed Rate Monitor Tool
Source: Investing.com

As of Friday morning, investors currently anticipate a 72% chance of a 25-basis point rate hike at the Fed’s July 25-26 meeting, according to the Investing.com Fed Rate Monitor Tool.

What to Do Now

A hawkish message from the Federal Reserve amid a powerful stock market rally is presenting investors with a dilemma: how to maintain exposure to rising equities while also protecting against the possibility of a looming correction.

While I have been adding to my equity positions during the current rally, I plan to reverse that stance and head to the sidelines if the trend starts to change and the market starts to turn.Overall, it’s important to remain patient, and alert to opportunity. Not buying extended stocks, and not getting too concentrated in a particular company or sector are still important.

Taking that into consideration, I used the Investing Pro stock screener to build a watchlist of high-quality stocks which are still undervalued amid the current market environment.

Not surprisingly some of the names to make the list include Alphabet (NASDAQ:GOOGL), UnitedHealth (NYSE:UNH), ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), Merck & Company (NYSE:MRK), Pfizer (NYSE:PFE), Cisco (NASDAQ:CSCO), and Qualcomm (NASDAQ:QCOM) to name a few.

InvestingPro Screener Screen
InvestingPro Screener Screen
Source: InvestingPro

With InvestingPro, you can conveniently access a single-page view of complete and comprehensive information about different companies all in one place, eliminating the need to gather data from multiple sources and saving you time and effort.

Start your 7-day free trial to unlock must-have insights and data!

***

Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.

The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

Bull Market Rally Continues Despite Hawkish Fed: What to Do Now?
 

Related Articles

Bull Market Rally Continues Despite Hawkish Fed: What to Do Now?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (8)
Guven Buyukpolat
Guven Buyukpolat Jun 19, 2023 12:14AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
he was saying 6 months ago sell carnival stock it was $8 now that stock is over $16. Alsohe was saying buy cvs it was all the time highs it was $100 right now under $70. 🤣Fighting fed 🤣🤣
Bob Stock
Bob Stock Jun 16, 2023 11:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I did not hear one positive comment below his last story so I would prefer to go with the guys and your negative comments because they are probably correct. I don't follow him to make any comments but I do find the common investor to be more accurate and someone selling a product
Jurgen Daub
Jurgen Daub Jun 16, 2023 11:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
wondering how much money this man makes by constantly deceiving people. non of the comments is positiv. yeah, just another jim cramer.
Sam Jennings
Sam Jennings Jun 16, 2023 10:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Try being honest, for a change.  What a deceitful headline.  They did not raise rates.  That breaks from a consistent pattern of raising them pretty much each time, over the past a year and a half, and they are saying that, pretty much they anticipate, at most, 2 more hikes over the next 6 months...SO:  a radical slowing of rate hikes.  They also specifically cited their concerns about the bank crisis, which their previous rate hikes already caused. That puts "sideways rates" onto the radar. Some people are even  openly expecting a reduction in rates.
jason xx
jason xx Jun 16, 2023 10:42AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Such a loser. Market is not fighting the fed. The market trades off more than rate hikes. Its not so simple and you beats hate it and don't get it. Im not going to explain it but we have already had 500 points in hikes. You really think 50 more bps that probably won't even happen are supposed to cause a big correction? Delusional
Derick Lim
Derick Lim Jun 16, 2023 10:42AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
When ignorance egoistic human intelligence try to act like AI
Roy Nisani
Roy Nisani Jun 16, 2023 10:34AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it's funny u were short 2 weeks ago, got squeezed now u bull , you the real Jim Cramer, oh and FYI, the intel u told sell at 24 because it's going to 19? I bought it's now 36....bad bad analyst
Ross Dre
Ross Dre Jun 16, 2023 6:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I could have predicted thaf comment from ol’ Derick.
jason xx
jason xx Jun 16, 2023 6:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Every article he crys about AI when he doesn't even understand it. Definition of ignorance.
Derick Lim
Derick Lim Jun 16, 2023 6:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ignorance is when a human intelligence try to act as AI
First Last
First Last Jun 16, 2023 6:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Derick Lim   Human ignorance predates AI.
Derick Lim
Derick Lim Jun 16, 2023 6:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hawkish Fed are no match to AI mighty power rallying the stocks .....
Derick Lim
Derick Lim Jun 16, 2023 6:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The last who laugh are better than those egoistic human intelligence trying to mimic AI
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email