Market Pulse

In focus

With several other central banks trying to soften the blow of tightening financial conditions in recent weeks, the Federal Reserve (Fed) did not want to give that potentially “dovish” perception last week. They raised the Fed funds rate by 0.75% for the fourth-straight time last week. Chair Powell reiterated their hawkish stance and said that even if the pace of rate increases slows down, the expected peak in the Fed funds rate has likely risen given the strength in the labor market and persistence of inflation.

Volatility remained in the U.S. Treasury market last week as traders’ hopes for a dovish Fed pivot were washed away after Chair Powell’s press conference. The yield curve further inverted with the 2-year/10-year yield curve reaching its lowest level since 1982. With the projection for the Fed’s terminal rate now lifted above 5%, the 2-year yield rose to its highest level since 2007, now at 4.67%.

Over 80% of the S&P 500 has reported Q3 earnings, with many still surprising to the upside, but not getting rewarded for it as they may have in the past. The stock market will likely turn towards the holiday season next and howmuch the U.S. consumer will spend now that consumer prices have risen by over 8% from last year. The October Consumer Price Index (CPI) is released this week and will again highlight which areas continue to have price pressures.

A look back

• Global stocks were mixed with the S&P 500 down by more than 3% last week while emerging markets were up by more than 4%.
• U.S. Treasury yields rose again last week with the 2-year yield rising more than the 10-year yield, inverting the curve even more.
• The Fed and the Bank of England (BOE) raised their benchmark rates by 0.75%, while the BOE now projects a recession next year.

A look ahead

• The CPI report will be released this week, with expectations that monthly figures may slow but stay higher than the Fed wants.
• Eight Fed officials will give speeches this week as they try to frame their stance given the potentially higher terminal rate outlook.
• Economic releases: Wholesale Inventories, MBA Mortgage Applications, CPI, Univ. of Michigan Sentiment. 

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