Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Hopeful U.S. stock rally set for date with Federal Reserve reality

Economy Oct 28, 2022 08:56PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
3/3 © Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2022. REUTERS/Brendan McDermid 2/3
 
US500
-1.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MSFT
-2.36%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
LLY
+2.53%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GOOGL
-2.75%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
QCOM
-0.61%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AMZN
-8.43%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Lewis Krauskopf

NEW YORK (Reuters) - A bounce in U.S. stocks that has defied a barrage of major earnings disappointments faces a key test in the coming week, when the Federal Reserve's next meeting could shed light on how long it will stick to the aggressive monetary policies that have crippled asset prices in 2022.

Betting on a less hawkish Fed has been a dangerous undertaking this year. Stocks have repeatedly rebounded from lows on expectations of a so-called Fed pivot, only to be crushed anew by fresh evidence of persistent inflation or a central bank bent on maintaining its pace of rate increases.

Pockets of softness in the U.S. economy have fueled recent hopes of a tempering of rate hikes, along with signs that some of the world’s central banks may be nearing the end of their rate hiking cycles. Meanwhile, cash-heavy investors afraid of missing out on a sustained rally have contributed to the bullish move, market participants said.

“The market is starting to believe that there is an endgame in sight for this huge global tightening cycle,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

The S&P 500 was on pace to end the week with a gain of over 3%, as investors shrugged off brutal earnings reports from companies such as Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google parent Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:META) parent Meta Platforms.

The benchmark index is up over 8% from its most recent low, a move that has been accompanied by a sharp rally in U.S. Treasuries and a weakening of the dollar, reversing trends that have prevailed for most of the year.

A smaller than expected rate increase by the Bank of Canadaadded to hopes of a peak in global central bank hawkishness, as did comments from a Bank of Mexico board member cautioning against increasing monetary policy to excessively restrictive levels.

While investors have broadly factored in a 75 basis point rate hike on Wednesday at the end of the Fed's two-day meeting, many will be looking for hints of future policy moves in Chairman Jerome Powell’s press conference, as his comments have swayed asset prices this year.

For example, stocks rallied ahead of the Fed's conference in Jackson Hole, Wyoming, in August, only for the market to decline anew after Powell warned about economic fallout from the Fed's efforts to fight inflation.

"If his tone is as terse and as hawkish as it was in August at Jackson Hole, that would certainly change the narrative rather rapidly,” said Art Hogan, chief market strategist at B. Riley Wealth.

Next week will also test whether stocks can continue to weather disappointing earnings news. More than 150 S&P 500 companies are due to report quarterly results next week, including Eli Lilly (NYSE:LLY), ConocoPhillips (NYSE:COP) and Qualcomm (NASDAQ:QCOM).

Investors will also closely watch next Friday's monthly jobs report for signs of whether the Fed's actions have tempered the labor market.

Plenty of investors believe it’s too early to hope for a slowing of rate hikes. Analysts at UBS Global Wealth Management said the Fed has yet to see evidence of cooling inflation and labor market conditions and that they "continue to think that it is too early to expect the Fed to signal a more dovish stance." "Conditions for an equity market bottom, including that rate cuts and an economic trough need to be on the horizon, are not yet in place," the UBS analysts said in a note.

Lerner, of Truist, on Friday issued a report downgrading his view on equities to "less attractive" from "neutral" following the rebound. He said that while stocks have become cheaper on an absolute basis this year, "they have actually become more expensive relative to bonds given the sharp rise in interest rates."

For now, however, it appears the bulls are emboldened. One example of investor enthusiasm can be seen in the options market, where the one month average daily volume of S&P 500 puts, typically used for defensive positioning, outnumbers bullish calls by the smallest margin in at least four years, according to Trade Alert data.

"The market is thinking good things," said Kristina Hooper, chief global market strategist at Invesco. "Jay Powell will either confirm that or dispel that next week."

Hopeful U.S. stock rally set for date with Federal Reserve reality
 

Related Articles

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)
Stephen Fa
Stephen Fa Oct 30, 2022 7:59PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Reality remains. PCE has spoken.
Mario Rossi
Mario Rossi Oct 29, 2022 1:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The rally is just manipulation! 50 real value shall be 30% lower! It is much higher than precovid values. Why? All data are much worse now!
Tilak Mundu
tluck Oct 29, 2022 1:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
FED + MARKET =MIDTERM
Vnod Be
Vnod Be Oct 28, 2022 11:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
this rally is not set for date with fed realty but midterm manipulation
Ac Tektrader
Ac Tektrader Oct 28, 2022 11:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it's following a cycle move and was predictable.....
Prakash Raja
Prakash Raja Oct 28, 2022 11:52PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
interest rate hikes but crude keeps going higher. unless crude prices are contained, inflation isnt gonna fall thru int hikes alone. ban on crude shld be removed rather metals ban can be thought for in russia. and ways to bring down crude prices will help USA. anyway as to india, most companies have shown 20-30 % and some even 70-200 % rise in profits especially banks, autos, fmcg, IT etc., in india growth is intact rather happening in a huge way (may be due to pent up demand from 1.5 yrs of covid or the anils ambanis taking huge loans for expansion). that said, coming back to google fb amazon - they arent such poor results. they are kind of inline with expectations and already fb etc are beaten down 50-70 % from high prices. so these forecasts and current results are factored in. may be one more low toward 8500-9000 possible after a rally to 12200-800 for nasdaq. so this rally thats happening now is completely justifiable. other companies have shown good results (in dow jones).
Casador Del Oso
Casador Del Oso Oct 28, 2022 4:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yield curve inversion 3MO yield 4.0848% 10 YR yield 4.010% LOOK OUT BELOW!
Nasser Hefny
Nasser Hefny Oct 28, 2022 4:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You can't fight stubborn inflation by incremental increases in interest rate. Sooner or later the FED will realize that. THER NO SUCH THING CALLED SOFTLANDING.
Kris Jay
Kris Jay Oct 28, 2022 4:42PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
there is if inflation was below 4% but Powell and Yellen missed all of the signs in 2021 when they could have raised and things would have hummed right along.    so no when inflation is 4x target, I agree, soft landing very difficult since data is lagging.  we still havent seen the full effect on housing, so come summer 2023 there will be further pain.
John Berry
John Berry Oct 28, 2022 4:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Better cover your short
patricio Silva
patricio Silva Oct 28, 2022 4:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Fed 100
Kris Jay
Kris Jay Oct 28, 2022 4:02PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
its not clear that is the correct move.  these rallies are very very low volume and there is not a lot of positive things on the horizon.
 
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