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Markets in Holding Pattern as Fed Continues Its Pause on Rates…

Dumaine Investments Weekly Market Update – November 1, 2023

– After a brief rally at the start of October, US stocks traded lower over the second half of the month as elevated interest rates, mixed earnings, and heightened tensions in the Middle East took a toll on markets. The S&P 500 posted its worst October performance in three years, dropping more than 2%. More alarmingly, the Nasdaq Composite had its worst October since 2018 as the tech sector, priced for perfection, saw a material selloff.

– On Wednesday, The Federal Reserve opted not to hike the Fed Funds target rate for the second consecutive meeting, the third pause overall in 2023. While the Fed appears to have completed the most aggressive campaign of interest-rate increases in a generation, Chairman Powell still has a lot to worry about, and it would seem unwise to completely rule out another hike before the end of the year. The CME Fedwatch tool is currently pricing in a 25% probability of a December rate increase.

– Economic data released Tuesday showed wage growth is indeed cooling, but not as quickly as the Fed would like. At the same time, year-over-year home prices continue to rise appreciably more than consensus forecasts. Moreover, the United Auto Workers (UAW) union recently won a 25% hourly pay raise from all three auto makers. While the UAW’s success was great for its members, Fed officials may wonder if this move sets a precedent for other workers who are still feeling the pinch of two years of high inflation.

– Prior to the Fed announcement Wednesday, the U.S. Treasury decided to moderate sales of its longer-dated debt, a move that is expected to push down bond yields—and buoy bond prices—while also providing support for stocks. The department said it would sell $112 billion in long- and medium-term securities in its coming auctions but reduce the increase in 10-year and 30-year auctions as compared with the amount sold in August.

DISCLAIMER: The information provided in this blog post is for informational purposes only and should not be construed as financial advice. Investment decisions should be based on individual financial goals, risk tolerance, and consultation with a qualified financial professional.