The Federal Reserve is likely to keep rates unchanged Wednesday as it would prefer to assess more incoming economic data and avoid making policy changes so close to the mid-term elections. While bond yields have cooled off, they surged in the weeks following the Fed’s September rate hike, suggesting that the markets have done plenty of tightening for the Fed already.
The Federal Reserve knows that the tools in its toolbox can’t control energy prices, which is such a big driver of inflation, so it would rather hike rates carefully and slowly, rather than embark on a swift hiking cycle.
The stock market is moments away from entering its seasonally strong year-end period. We would expect more seasonal strength this year thanks to fading uncertainty from the midterm elections and fading uncertainty from the Federal Reserve because it’s likely that they will hike again in December, allowing stocks to move onto other components of the wall of worry. If there was ever a time to stay invested, this is that time, in our view.
Bond yields have moved back near 5%, and yet, the stock market has failed to rally meaningfully, which shows that market sentiment over the short-term is often sloppy and stocks aren’t necessarily tied to bond yields.
Earnings season is in full swing and the big tech companies are showing that they can do it all: report strong earnings, beat expectations and spend big on AI CAPEX. This is largely why these companies make up such a large part of the broader markets, because of their financial prowess.
