STOCK MARKET • S&P • FED UPDATE
The Fed Funds rate now ranges between 3.75 – 4%.
As was somehow not expected (based on the two week wishful thinking rally in stocks), Chairman Jerome Powell reiterated the stance he’s taken since they started hiking rates: hawkish and determined to defeat inflation no matter what happens to the economy or markets.
Powell acknowledged that monetary policy takes time to show up in the economy (lagging effects), though he also stressed that we are far from ending the fight against inflation. He stated loud and clear so that the stock market could hear:
Powell urged, in as clear terms as he could muster, the stock market to consider the reality of the moment:
Inflation remains stubbornly high.
The economy is not slowing enough to cool inflation to the degree the Fed needs it to.
The labor market remains very strong and is a key indicator the Fed is watching when it comes to inflation. As Powell stated in September, “We need to have softer labor market conditions.”
Large cap tech hurt most:
The Dow, like the S&P 500, has met with resistance at its 200-day moving average (see charts below).
Fast tightening cycles, particularly those to combat inflation, lead to flat equity performance.
Here we see the amount of M2 money supply (the green line). Notice the jump in 2020 thanks to the trillions in stimulus that went direct to consumers, businesses, and local governments.
The amount is starting to come down, but we are still far from the normal trend line (red dots).
This chart shows the ratio of job openings (vacancies) the the amount of unemployed in the economy. As you can see the number went up last month and sits at 1.8 jobs vacant/open to every unemployed American.
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