Marketbites: Markets Down Ahead of Rate Hike
Portfolio Manager Commentary:
Indices started off in the red to begin November ahead of an expected 75 basis-point rate hike today. Stocks had started out the day trading higher due to hopefulness of looser Covid restrictions in China. Then, stocks came back down after new data showed a red-hot labor market which made investors worry that the Fed would cement their hawkish stance for a longer time frame. Markets have already priced in an interest rate raise of 75 basis points for today, but any signs of a more hawkish Fed in the future could cause a violent reaction.
“The November meeting isn’t really about November. It’s about December,” says Michael Gapen, chief U.S. economist at Bank of America. He expects the Fed to raise rates to a level of 4.75% to 5% by spring, and that would be its terminal rate — or end point. The 75 basis point hike Wednesday would take the fed funds rate range to 3.75% to 4%, from a range of zero to 0.25% in March.
Chart of the Day:
The chart below highlights monthly returns from a basket of meme stocks tracked by Bloomberg. These meme stocks just ended their best month of the year in October and outperformed the broader market. It is the most recent sign that the 'pivot' rally may have gone too far and been too quick. This is similar to the market frenzy in retail-favorite shares this past summer which was quickly squashed by Jerome Powell's hawkish sentiment at the Jackson Hole economic symposium in late August.