What a Wednesday
The following were the headlines on the frontpage of Thursday’s, The Wall Street Journal:
- Fed Lifts Rate, Signals More, Sinking Stocks
- Putin Calls Up Reservists, Hints at Nuclear Weapons
- Home Sales Extend String of Declines
- New York Hits Trump with Fraud Suit
- Meta (Facebook) Quietly Reduces its Staffing
- Researchers are Trying to Find Bigfoot – Just Don’t Tell Anyone
Given these headlines, and the key piece of news that the Federal Reserve raising rates 75 basis points or 0.75%, stocks fell on Wednesday. The Federal Reserve’s 75 basis point hike was largely expected but it was Chairman Jerome Powell’s unwavering hawkishness in the battle against inflation that upset stock markets. Chairman Powell said “We will keep at it until the job is done,” and “I wish there were a painless way to do that. There isn’t.” The Fed projects another 125 basis points of increases to the year-end. They also see the fed funds rate rising above 4.5% next year. This increases the likelihood of the U.S. economy going into a recession.
The other headlines are troubling as well. The increased rhetoric from Vladimir Putin and the actual mobilization of troops dampens the prospects of a respite in the conflict. It also will weigh heavily on Europe and energy prices in the coming winter. Other headlines pointed to the beginning of a string of job cuts, as was announced by Meta (Facebook) this week. Additionally, housing prices are falling, and higher inflation may start to weaken what has been a resilient consumer.
At this stage, the risks to the markets and economy are well known, hence the weak equity and bond markets. Often when the pessimism is priced into the market, it can become an opportunistic buy signal for longer term investors. We are hesitant to move to a more aggressive stance. It is likely the volatility and uncertainty around the economy will continue next year. Chairman Powell’s comments clearly reflect his focus on bringing down inflation, possibly to the detriment of the economy.
About the only headline from Thursday that didn’t cause worry was the fact that many “researchers” are still trying to find Bigfoot. One researcher commented that “a lot of Bigfooting is just sitting and waiting and listening” apparently for a sighting of Sasquatch. This may be prudent advice for the last quarter of the year for markets as well. There is likely to be plenty of noise and the best course of action may be exercising the patience and cautiousness of those on a Bigfoot quest.