Stocks fall ahead of Fed decision next week: Market Recap Today

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And there you have it the major indices they’re closing in the red but up for the week so let’s take a look at how they fared overall as we see there the dow down just about half a percent they’re down 136 points the s p 500 also down about a percent and the biggest loser of the day the tech heavy nasdaq there down more than 220 points losing almost two percent

On the day but let’s break down more of this market action with our markets panel tim pagliara capital cap wealth chief investment officer and francis stacy optimal capital director of strategy so francis i want to start with you at the end of the week that was what should investors really take away from this period that we’re in well uh go ahead i’m sorry i

Didn’t i didn’t hear your question oh the question is to francis first basically getting her takeaways of the week so far for investors yes thank you so there are a number of things that are very fascinating particularly um when we think that we’re going to get a fed decision next week we’re going to get gdp next week we’re going to get pce next week we’re

Going to get consumer uh data next week um in addition to all of those tech earnings so um basically volatility has fallen off even though we’ve had a down date today in both the bond the move index and also with the vic and the vxn which is kind of remarkable we’ve also had a fifth lower high in the tenured so rates are really starting to turn around and kind

Of follow the fed’s bluff despite the fact that we expect a 75-bit move uh next week from the fed in addition to last month’s 75-bit move um and so it’s just kind of interesting the dollar has also reversed i’m looking for the dxy to hold 126 um or i’m sorry 106 25 to see if this reversal is just sort of like a little bit of a waning in the bullish momentum or

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Could be something more meaningful that would also be another early indicator that the fed may have to pivot before they want to and tim let me just get your reaction to that um we were talking about the dollar here and also the fed next week what are you expecting 75 100 bips and what’s the long-term uh plan here well i think 75 is pretty much baked in and

That’s what i’m expecting the real issue is there’s a lot of talk about inflation is bending down but we’re not going to be anywhere near where the fed’s target of two percent is for a number of years you know when you have energy housing and monetary policy out of control and shortages and printing too much money that doesn’t lend itself to getting inflation

Under control and so how long will the fed tolerate where everybody be relieved right now to see a three to five percent inflation rate and so if they have to continue the upward move in interest rates following maybe even a little bit of a pause this fall um that’s when you’ll see the impact that it has on stock valuations and how interested people are you

Know to maintaining momentum in the market and i want to follow there francis on that prediction of two percent not for a couple of years what are your thoughts on that and when will we see even the the the number we just saw in june when will we see inflation begin to come down and what will all this force the fed to do yeah so it’s really interesting so jay

Powell was very clear that they’re going to be focusing on headlines ppi inflation and there is a lag effect so energy has been obviously a huge participant and though the energy prices have dropped there’s about a one month lag until the energy price change shows up in cpi uh used cars were a big thing you know during the pandemic and they have also dropped

Off quite a bit but that has a two-month lag uh most of the food components have dropped off pretty dramatically i mean some of the commodities you would even say have crashed and that has a four four month flag on average and then owner’s equivalent rent actually has an 18 month lag until those price changes are absorbed into the cpi and that those are the

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Underlying mechanics of why cpi stays so sticky so to tim’s point if the fed is focused solely on cpi which he sort of claimed i don’t think that that’s actually true um yes then he’s going to remain hawkish the thing is is that despite his hawkish narrative and not wavering from the hawkish narrative uh financial conditions and bond markets and the dollar

Have already started to kind of question whether or not he’s going to be able to do that the fed is not going to pivot because they want to they’re going to pivot because they have to on the corporate bond index option adjusted fred we are nearing the level um that he had to pivot in 2018 we actually have more debt in the system to service and we did have a

Liquidity issue in september of 2019 which reignited quantitative easing before covid so because we have more debt in the system and because we have more credit risk as people use more credit cards and as rates go up things are harder and harder to service and now we have very clear signs of demand destruction so financial conditions have actually started to

Loosen ahead of that narrative from jay powell and so it’s just going to be interesting to see what he says on wednesday but traders are already starting to kind of call his bluff particularly in the bond market so then tim in this environment then where do you see the opportunities and what are you staying away from right now well i’d stay away from nasdaq as

An index in years where nasdaq’s declined 29 the following year recovery is about 5 um so i would focus on individual names i’d be very defensive um we like for example williams williams is a natural gas pipeline producer we know we’re going to be shipping more natural gas that has a 5.1 dividend yield and it’s going to be somewhat insulated from a lot of

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These other um bad things that could continue to happen um in the market and uh one last question here francis uh you mentioned the dxy the dixie heavily weighted it’s a basket and it tracks the euro the yen but heavily weighted toward europe but i have a chart on the wi-fi interactive here i want you to respond to uh we are up again we are in no man’s land

If you’re playing some technical analysis here what happens if we go to 120 and we re-test these 20-year-old highs uh yeah that could be right but when you think about the mechanics of tightening versus easing the the dollar being bullish is both a defensive play and also when you tighten the money supply then that increases the value of the currency and so

That’s been you know the impetus behind the dollars run and if j powell remains tight tight tight i can see the dollar doing better obviously europe as you say is weighted and doing worse um and now they’ve started to tighten there that’s going to be an interesting balance but the euro has still dropped against the us dollar so we could test those highs however

If we start to think that the fed is going to have to pivot before they finish the tightening cycle that has been projected into the markets already i see the dollar reversal being key to that also of late the dollar has been negatively correlated to gold um you know gold is sort of quintessentially defensive um when you have you know slowing growth so it’s

Just going to be interesting to see how all of that plays out always love talking effects on a friday afternoon thank you for that francis stacy and tim pugliaro

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Stocks fall ahead of Fed decision next week: Market Recap Today By Yahoo Finance