Fed holds rates steady, upgrades assessment of economic growth

The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.

In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.

The decision included an upgrade to the committee’s general assessment of the economy. Stocks rallied on the news, with the Dow Jones Industrial Average gaining 212 points on the session.

“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”

Powell added that the FOMC is not considering or even discussing rate reductions at this time.

He also said the risks around the Fed doing too much or too little to fight inflation have become more balanced.

“This signals that while there is a potential risk for the Fed to do more, the bar has become higher for rate hikes, and we are clearly seeing this play out with two consecutive meetings of no policy action from the Fed,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Economy has ‘moderated’

The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.”

Gross domestic product expanded at a 4.9% annualized rate in the third quarter, stronger than even elevated expectations. Nonfarm payrolls growth totaled 336,000 in September, well ahead of the Wall Street outlook.

There were few other changes to the statement, other than a notation that both financial and credit conditions had tightened. The addition of “financial” to the phrase followed a surge in Treasury yields that has caused concern on Wall Street. The statement continued to note that the committee is still “determining the extent of additional policy firming” that it may need to achieve its goals. “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said.

Wednesday’s decision to stay put comes with inflation slowing from its rapid pace of 2022 and a labor market that has been surprisingly resilient despite all the interest rate hikes. The increases have been targeted at easing economic growth and bringing a supply and demand mismatch in the labor market back into balance. There were 1.5 available jobs for every available worker in September, according to Labor Department data released earlier Wednesday.

Core inflation is currently running at 3.7% on an annual basis, according to the latest personal consumption expenditures price index reading, which the Fed favors as an indicator for prices.

While that has decreased steadily this year, it is well above the Fed’s 2% annual target.

The post-meeting statement indicated that the Fed sees the economy holding strong despite the rate hikes, a position in itself that could prompt policymakers into a prolonged tightening stance.

In recent days, the “higher-for-longer” mantra has become a central theme for where the Fed is headed. While multiple officials have said they think rates can stay where they are as the Fed assesses the impact of the previous increases, virtually none have said they are considering cuts anytime soon. Market pricing indicates the first cut could come around June 2024, according to CME Group data.

Surging bond yields

The restrictive stance has been a factor in the surging bond yields. Treasury yields have risen to levels not seen since 2007, the earliest days of the financial crisis, as markets parse out what is ahead. Yields and prices move in opposite direction, so a rise in the former reflects waning investor appetite for Treasurys, generally considered the largest and most liquid market in the world.

The surge in yields is seen as a byproduct of multiple factors, including stronger-than-expected economic growth, stubbornly high inflation, a hawkish Fed and an elevated “term premium” for bond investors demanding higher yields in return for the risk of holding longer-duration fixed income.

There also are worries over Treasury issuance as the government looks to finance its massive debt load. The department this week said it will be auctioning off $776 billion of debt in the fourth quarter, starting with $112 billion across three auctions next week.

During a recent appearance in New York, Powell said he thinks the economy may have to slow further to bring down inflation. Most forecasters expect economic growth to tail off ahead.

A Treasury Department forecast released earlier this week indicated that the pace of growth likely will tumble to 0.7% in the fourth quarter and just 1% for the full year in 2024. Projections the Fed released in September put expected GDP growth at 1.5% in 2024.

In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP almost in half to 1.2% from 2.3%. The gauge takes in data on a real-time basis and adjusts its estimates with the latest information.

Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said it’s likely the Fed will keep its policy unchanged into next year.

“There are risks in both directions,” Watson said. “The rise in inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”

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It’s time to hang up on the old telecoms rulebook

Joakim Reiter | via Vodafone

Around 120 years ago, Guglielmo Marconi planted the seeds of a communications revolution, sending the first message via a wireless link over open water. “Are you ready? Can you hear me?”, he said. Now, the telecommunications industry in Europe needs policymakers to heed that call, to realize the vision set by its 19th-century pioneers.

Next-generation telecommunications are catalyzing a transformation on par with the industrial revolution. Mobile networks are becoming programmable platforms — supercomputers that will fundamentally underpin European industrial productivity, growth and competitiveness. Combined with cloud, AI and the internet of things, the era of industrial internet will transform our economy and way of life, bringing smarter cities, energy grids and health care, as well as autonomous transport systems, factories and more to the real world.

5G is already connecting smarter, autonomous factory technologies | via Vodafone

Europe should be at the center of this revolution, just as it was in the early days of modern communications.

Next-generation telecommunications are catalyzing a transformation on par with the industrial revolution.

Even without looking at future applications, the benefits of a healthy telecoms industry for society are clear to see. Mobile technologies and services generated 5 percent of global GDP, equivalent to €4.3 trillion, in 2021. More than five billion people around the world are connected to mobile services — more people today have access to mobile communications than they do to safely-managed sanitation services. And with the combination of satellite solutions, the prospect of ensuring every person on the planet is connected may soon be within reach.

Satellite solutions, combined with mobile communications, could eliminate coverage gaps | via Vodafone

In our recent past, when COVID-19 spread across the world and societies went into lockdown, connectivity became critical for people to work from home, and for enabling schools and hospitals to offer services online.  And with Russia’s invasion of Ukraine, when millions were forced to flee the safety of their homes, European network operators provided heavily discounted roaming and calling to ensure refugees stayed connected with loved ones.

A perfect storm of rising investment costs, inflationary pressures, interest rate hikes and intensifying competition from adjacent industries is bearing down on telecoms businesses across Europe.

These are all outcomes and opportunities, depending on the continuous investment of telecoms’ private companies.

And yet, a perfect storm of rising investment costs, inflationary pressures, interest rate hikes and intensifying competition from adjacent industries is bearing down on telecoms businesses across Europe. The war on our continent triggered a 15-fold increase in wholesale energy prices and rapid inflation. EU telecoms operators have been under pressure ever since to keep consumer prices low during a cost-of-living crisis, while confronting rapidly growing operational costs as a result. At the same time, operators also face the threat of billions of euros of extra, unforeseen costs as governments change their operating requirements in light of growing geopolitical concerns.

Telecoms operators may be resilient. But they are not invincible.

The odds are dangerously stacked against the long-term sustainability of our industry and, as a result, Europe’s own digital ambitions. Telecoms operators may be resilient. But they are not invincible.

The signs of Europe’s decline are obvious for those willing to take a closer look. European countries are lagging behind in 5G mobile connectivity, while other parts of the world — including Thailand, India and the Philippines — race ahead. Independent research by OpenSignal shows that mobile users in South Korea have an active 5G connection three times more often than those in Germany, and more than 10 times their counterparts in Belgium.

Europe needs a joined-up regulatory, policy and investment approach that restores the failing investment climate and puts the telecoms sector back to stable footing.

Average 5G connectivity in Brazil is more than three times faster than in Czechia or Poland. A recent report from the European Commission — State of the Digital Decade (europa.eu) shows just how far Europe needs to go to reach the EU’s connectivity targets for 2030.

To arrest this decline, and successfully meet EU’s digital ambitions, something has got to give. Europe needs a joined-up regulatory, policy and investment approach that restores the failing investment climate and puts the telecoms sector back to stable footing.

Competition, innovation and efficient investment are the driving forces for the telecoms sector today. It’s time to unleash these powers — not blindly perpetuate old rules. We agree with Commissioner Breton’s recent assessment: Europe needs to redefine the DNA of its telecoms regulation. It needs a new rulebook that encourages innovation and investment, and embraces the logic of a true single market. It must reduce barriers to growth and scale in the sector and ensure spectrum — the lifeblood of our industry — is managed more efficiently. And it must find faster, futureproofed ways to level the playing field for all business operating in the wider digital sector.

But Europe is already behind, and we are running out of time. It is critical that the EU finds a balance between urgent, short-term measures and longer-term reforms. It cannot wait until 2025 to implement change.

Europeans deserve better communications technology | via Vodafone

When Marconi sent that message back in 1897, the answer to his question was, “loud and clear”. As Europe’s telecoms ministers convene this month in León, Spain, their message must be loud and clear too. European citizens and businesses deserve better communications. They deserve a telecoms rulebook that ensures networks can deliver the next revolution in digital connectivity and services.

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#time #hang #telecoms #rulebook

Getting to 2% inflation won’t be easy. This is what will need to happen, and it might not be pretty

A construction in a multifamily and single family residential housing complex is shown in the Rancho Penasquitos neighborhood, in San Diego, California, September 19, 2023.

Mike Blake | Reuters

In theory, getting inflation closer to the Federal Reserve’s 2% target doesn’t sound terribly difficult.

The main culprits are related to services and shelter costs, with many of the other components showing noticeable signs of easing. So targeting just two areas of the economy doesn’t seem like a gargantuan task compared to, say, the summer of 2022 when basically everything was going up.

In practice, though, it could be harder than it looks.

Prices in those two pivotal components have proven to be stickier than food and gas or even used and new cars, all of which tend to be cyclical as they rise and fall with the ebbs and flows of the broader economy.

Instead, getting better control of rents, medical care services and the like could take … well, you might not want to know.

“You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard. “You’re not going to magically get down to 2%.”

Annual inflation as measured by the consumer price index fell to 3.7% in September, or 4.1% if you kick out volatile food and energy costs, the latter of which has been rising steadily of late. While both numbers are still well ahead of the Fed’s goal, they represent progress from the days when headline inflation was running north of 9%.

The CPI components, though, told of uneven progress, helped along by an easing in items such as used-vehicle prices and medical care services but hampered by sharp increases in shelter (7.2%) and services (5.7% excluding energy services).

Drilling down further, rent of shelter also rose 7.2%, rent of primary residence was up 7.4%, and owners’ equivalent rent, pivotal figures in the CPI computation that indicates what homeowners think they could get for their properties, increased 7.1%, including a 0.6% gain in September.

Without progress on those fronts, there’s little chance of the Fed achieving its goal anytime soon.

Uncertainty ahead

“The forces that are driving the disinflation among the various bits and micro pieces of the index eventually give way to the broader macro force, which is rising, which is above-trend growth and low unemployment,” Blitz said. “Eventually that will prevail until a recession comes in, and that’s it, there’s nothing really much more to say than that.”

On the bright side, Blitz is among those in the consensus view that see any recession being fairly shallow and short. And on the even brighter side, many Wall Street economists, Goldman Sachs among them, are coming around to the view that the much-anticipated recession may not even happen.

In the interim, though, uncertainty reigns.

“Sticky-price” inflation, a measure of things such as rents, various services and insurance costs, ran at a 5.1% pace in September, down a full percentage point from May, according to the Atlanta Fed. Flexible CPI, including food, energy, vehicle costs and apparel, ran at just a 1% rate. Both represent progress, but still not a goal achieved.

Markets are puzzling over what the central bank’s next step will be: Do policymakers slap on another rate hike for good measure before year-end, or do they simply stick to the relatively new higher-for-longer script as they watch the inflation dynamics unfold?

“Inflation that is stuck at 3.7%, coupled with the strong September employment report, could be enough to prompt the Fed to indeed go for one more rate hike this year,” said Lisa Sturtevant, chief economist for Bright MLS, a Maryland-based real estate services firm. “Housing is the key driver of the elevated inflation numbers.”

Higher interest rates’ biggest impact has been on the housing market in terms of sales and financing costs. Yet prices are still elevated, with concern that the high rates will deter construction of new apartments and keep supply constrained.

Those factors “will only lead to higher rental prices and worsening affordability conditions in the long run,” wrote Christopher Bruen, senior director of research at the National Multifamily Housing Council. “Rising rates threaten the strength of the broader job market and economy, which has not yet fully digested the rate hikes already enacted.”

Longer-run concerns

The notion that rate increases totaling 5.25 percentage points have yet to wind their way through the economy is one factor that could keep the Fed on hold.

That, however, goes back to the idea that the economy still needs to cool before the central bank can complete the final mile of its race to bring down inflation to the 2% target.

One positive in the Fed’s favor is that pandemic-related factors largely have washed out of the economy. But other factors linger.

“Pandemic-era effects have a natural gravitational pull and we’ve seen that take place over the course of the year,” said Marta Norton, chief investment officer for the Americas at Morningstar Wealth. “However, bringing inflation the remainder of the distance to the 2% target requires economic cooling, no easy feat, given fiscal easing, the strength of the consumer and the general financial health in the corporate sector.”

Fed officials expect the economy to slow this year, though they have backed off an earlier call for a mild recession.

Policymakers have been banking on the notion that when existing rental leases expire, they will be renegotiated at lower prices, bringing down shelter inflation. However, the rising shelter and owners’ equivalent rent numbers are running counter to that thinking even though so-called asking rent inflation is easing, said Stephen Juneau, U.S. economist at Bank of America.

“Therefore, we must wait for more data to see if this is just a blip or if there is something more fundamental driving the increase such as higher rent increases in larger cities offsetting softer increases in smaller cities,” Juneau said in a note to clients Thursday. He added that the CPI report “is a reminder that we do not have good historic examples to lean on” for long-term patterns in rent inflation.

Core service numbers show inflation is still relatively elevated, says Nationwide's Kathy Bostjancic

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#inflation #wont #easy #happen #pretty

S&P 500 Turnaround: 3 Charts You Need To Watch



  • Rising Treasury yields have hurt growth stocks but buying opportunities could lie ahead
  • The stock market could bottom at the end of September and present buying opportunities
  • Watch Fibonacci levels, Equal Weighted S&P 500 Index, and market breadth for a reversal

Last week wasn’t the most optimistic on Wall Street. Even though the US economy is growing,  Federal Reserve Chairman Jerome Powell’s comments after the Fed meeting weren’t what investors wanted to hear.

The Federal Reserve’s decision to keep interest rates steady at 5.25–5.50% wasn’t a surprise, but the possibility of higher rates for longer than expected could have caused the sell-off in the stock market following Chairman Powell’s comments. The broader equity indexes ended lower for the week, with the Nasdaq Composite ($COMPQ) hit the hardest—down 3.6%.

Based on Powell’s comments, we can expect one more rate hike in 2023 and maybe only two rate cuts in 2024. In other words, it’ll take longer to lower rates, given that the GDP is projected to grow and the labor market remains tight. The lower-than-expected jobless claims number last week supports the possibility of inflation continuing for longer.

Higher Interest Rates

Higher interest rates aren’t great for growth stocks. If Treasury yields continue to rise or remain high, future earnings of companies that tend to borrow money become less attractive. Higher borrowing costs hurt future cash flows, which could result in lower stock prices.

It’s worth watching the chart of the 10-Year Treasury Yield Index ($TNX). The chart below shows that yields have been on a relatively steep ascent and are continuing to move higher. The 10-year Treasury yield is above 4.5%, a level not seen since 2007. If yields continue to move higher, stocks could fall even further, especially the large-cap growth stocks.

CHART 1: TREASURY YIELDS CONTINUE TO RISE. Rising Treasury yields can be a headwind for growth stocks. Chart source: StockCharts.com. For educational purposes.

If you look at the weekly chart of the Nasdaq Composite with the $TNX overlay, it’s interesting to see that from March 2020 to November 2021, the index was moving higher with the $TNX. In November 2021, a few months before the Fed started raising interest rates, the two started diverging. The Nasdaq Composite has dropped below its 100-day moving average. If it breaks below this support and takes out the August low of 13,162, the September pullback could become a reality.

The good news? It could present a buying opportunity. In a recent StockCharts TV episode of Charting Forward, three well-known technical analysts expressed their thoughts on how Q4 would unfold. All three agreed that the fourth quarter tends to be strong, with some sectors, such as Consumer Discretionary, Communication Services, Technology, Industrials, and Financials, likely to outperform. Commodities may also be coming off their base.

If you look at the markets now, your first thought might be it doesn’t seem like that’s likely to happen after a week. But it’s the stock market and it can turn on a dime. And given that this type of price action is typical in September, there’s a chance that the stock market could take off. All the more reason to watch the charts.

Charting Your Course With 3 Charts

Turning to the S&P 500, the weekly chart below displays that the index is at a critical support level at the 61.8% Fibonacci retracement level (using the January 2022 high and October 2022 low) and struggling to stay there. The 50% retracement level is an interesting one since it closely aligns with the support of the 100- and 50-week moving average.

CHART 2: WATCH THE 61.8% AND 50% FIBONACCI RETRACEMENT LEVELS. Depending on how low the S&P 500 index goes, the Fibonacci retracement levels could be reversal points. The S&P 500 is struggling to hold the 61.8% level. The next few days should tell more about the index’s directional move. Chart source: StockCharts.com. For educational purposes.

If the S&P 500 breaks below the 61.8% Fib retracement level, the index could likely hit that 50% level of 4160. A reversal from either of these Fibonacci levels could present buying opportunities.

Another chart to pay attention to is the S&P 500 Equal Weighted Index ($SPXEW). The index has been trending lower since the end of July. The chart below of $SPXEW is overlaid with the Invesco S&P 500 Top 50 ETF (XLG), a fund with pretty strong exposure to the Magnificent Seven stocks. The chart gives you a pretty good idea of how much the two diverge.  You can see that the two sometimes move closely, but other times, there’s a significant gap between the two. A reversal in $SPXEW or a narrowing of the gap between the two would be encouraging as we head into the end of September.

CHART 3: S&P 500 EQUAL WEIGHTED INDEX ($SPXEW) VS. INVESCO S&P 500 TOP 50 ETF (XLG). The gap between the two is pretty wide. Look for the gap between the two to narrow and a reversal in $SPXEW. Chart source: StockCharts.com. For educational purposes.

It’s worth viewing the market breadth indicators such as the Advance-Decline Line, the percentage of stocks trading above their 200-day moving average, and the Bullish Percent Index. The chart below displays that market breadth indicators are trending to the downside, meaning market breadth is narrowing.

CHART 4: MARKET BREADTH INDICATORS SHOW THAT BREADTH IS NARROWING. The indicators need to reverse before confirming a turnaround in the broader market. Chart source: StockCharts.com. For educational purposes.

Final Thoughts

Let’s hope the stock market turns around in October and ends strongly in Q4. According to the Stock Trader’s Almanac 2023, October is a “jinx” month, but overall, especially in a pre-election year, October tends to start reversing after a terrible September and can be a great time to buy. The potential headwinds the stock market could face are rising interest rates, rising oil prices, and a possible government shutdown.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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Fed Chair Powell calls inflation ‘too high’ and warns that ‘we are prepared to raise rates further’

Federal Reserve Chair Jerome Powell on Friday called for more vigilance in the fight against inflation, warning that additional interest rate increases could be yet to come.

While acknowledging that progress has been made and saying the Fed will be careful in where it goes from here, the central bank leader said inflation is still above where policymakers feel comfortable. He noted that the Fed will remain flexible as it contemplates further moves, but gave little indication that it’s ready to start easing anytime soon.

“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in prepared remarks for his keynote address at the Kansas City Fed’s annual retreat in Jackson Hole, Wyoming. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

The speech resembled remarks Powell made last year at Jackson Hole, during which he warned that “some pain” was likely as the Fed continues its efforts to pull runaway inflation back down to its 2% goal.

But inflation was running well ahead of its current pace back then. Regardless, Powell indicated it’s too soon to declare victory, even with data this summer running largely in the Fed’s favor. June and July both saw easing in the pace of price increases, with core inflation up 0.2% for each month, according to the Bureau of Labor Statistics.

“The lower monthly readings for core inflation in June and July were welcome, but two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” he said.

Powell acknowledged that risks are two-sided, with dangers of doing both too much and too little.

Powell's concerns about growth and the labor market being too strong are new, says Point72's Maki

“Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment,” he said. “Doing too much could also do unnecessary harm to the economy.”

“As is often the case, we are navigating by the stars under cloudy skies,” he added.

Markets were volatile after the speech, but stocks powered higher later in the day and Treasury yields were mostly up. In 2022, stocks plunged following Powell’s Jackson Hole speech.

“Was he hawkish? Yes. But given the jump in yields lately, he wasn’t as hawkish as some had feared,” said Ryan Detrick, chief market strategist at the Carson Group. “Remember, last year he took out the bazooka and was way more hawkish than anyone expected, which saw heavy selling into October. This time he hit it more down the middle, with no major changes in future hikes a welcome sign.”

A need to ‘proceed carefully’

Powell’s remarks follow a series of 11 interest rate hikes that have pushed the Fed’s key interest rate to a target range of 5.25%-5.5%, the highest level in more than 22 years. In addition, the Fed has reduced its balance sheet to its lowest level in more than two years, a process which was seen about $960 billion worth of bonds roll off since June 2022.

Markets of late have been pricing in little chance of another hike at the September meeting of the Federal Open Market Committee, but are pointing to about a 50-50 chance of a final increase at the November session. Projections released in June showed that almost all FOMC officials saw another hike likely this year.

Powell provided no clear indication of which way he sees the decision going.

“Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” he said.

However, he gave no sign that he’s even considering a rate cut.

“At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks,” Powell said. “Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

The chair added that economic growth may have to slow before the Fed can change course.

Gross domestic product has increased steadily since the rate hikes began, and the third quarter of 2023 is tracking at a 5.9% growth pace, according to the Atlanta Fed. Employment also has stayed strong, with the jobless rate hovering around lows last seen in the late 1960s.

“The basic thought that they’re close to done, they think they probably have a little bit more to do … that is the story they’ve been telling for a little while. And that was the heart of what he said today,” said Bill English, a former Fed official and now a Yale finance professor.

“I don’t think this is about sending a signal. I think this is really where they think they are,” he added. “The economy has slowed some but not enough yet to make them confident inflation is going to come down.”

Indeed, Powell noted the risk of strong economic growth in the face of widespread recession expectations and how that could make the Fed hold rates higher for longer.

“It was a balanced but not trend-changing speech, even if the Fed kept the ‘mission accomplished’ banner in the closet,” said Jack McIntyre, portfolio manager at Brandywine Global. “It leaves the Fed with needed optionality to either tighten more or keep rates on hold.”

Getting into details

No change to inflation goal

In addition to the broader policy outlook, Powell honed in some areas that are key both to market and political considerations.

Some legislators, particularly on the Democratic side, have suggested the Fed raise its 2% inflation target, a move that would give it more policy flexibility and might deter further rate hikes. But Powell rejected that idea, as he has done in the past.

“Two percent is and will remain our inflation target,” he said.

That portion of the speech brought some criticism from Harvard economist Jason Furman.

“Jay Powell said all the right things about near-term monetary policy, continuing to hope for the best while planning for the worst. He was appropriately cautious on inflation progress & asymmetric about the policy stance,” Furman, who was chair of the Council of Economic Advisers under former President Barack Obama, posted on X, the social media site formerly known as Twitter. “But wish he had not ruled out shifting the target.”

On another issue, Powell chose largely to stay away from the debate over what is the longer-run, or natural, rate of interest that is neither restrictive nor stimulative – the “r-star” rate of which he spoke at Jackson Hole in 2018.

“We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation,” he said. “But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint.”

Powell also noted that the previous tightening moves likely haven’t made their way through the system yet, providing further caution for the future of policy.

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Stock Market on Its Way to Highs: Will Tech Earnings be the Catalyst?



  • Earnings results from Big Tech stocks MSFT, META, GOOGL on deck
  • Strong earnings could push the Nasdaq 100 index to new highs
  • Investors will be listening to what the Fed has to say about inflation

The next couple of weeks should prove to be an exciting time for the stock market. Technology stocks will be dominating the earnings calendar, with Microsoft (MSFT), Alphabet (GOOGL), and Meta Platforms (META) reporting on the week of July 24. Amazon (AMZN) and Apple (AAPL) will report the following week. Given that tech stocks have driven the broad market rally, a lot is riding on their earnings. If earnings come in strong, the upside momentum could continue, but any sign of weakness, either from the numbers or guidance, could result in a pullback in the stock market.

Stay on top of earnings season by visiting the StockCharts Earnings Calendar. From Your Dashboard or Charts & Tools, scroll down to the Summary Pages and click on Earnings Calendar. Click on Upcoming Earnings and see which companies are reporting earnings.

A Technical Look at the Nasdaq 100 Index

Let’s take a look at the weekly chart of the Nasdaq 100 index ($NDX). The index has gone up almost 50% in 2023 so far. The chart below shows that $NDX has broken through most resistance levels and is on its way to its all-time high. The September 2021 high is the last resistance level the index has to push through; next week’s earnings report could be the deciding factor.

CHART 1: WEEKLY CHART OF NASDAQ 100 INDEX ($NDX). The index has bounced off the 61.8% Fibonacci retracement level. Will it push through its September 2021 high and reach a new high?Chart source: StockCharts.com (click chart for live version). For educational purposes.

Looking at the Fibonacci retracement levels from the 2020 low to the 2021 high, you can see that $NDX bounced off the 61.8% retracement level. For the most part, the various Fib retracement levels have acted as support and resistance levels during the upward move. Now it’s almost at its high. So will $NDX reach a new high in 2023?

If you look at the daily chart, $NDX has stayed above its 21-day exponential moving average (EMA) since mid-March 2023, except for a couple of times when it briefly dipped below it. If earnings from the Tech companies aren’t so great, then we could see a repeat of the counter trend move after Tesla (TSLA), Netflix (NFLX), and Taiwan Semiconductors (TSM) reported earnings. If $NDX falls below its 21-day EMA, you can expect a significant pullback in Tech stocks. But if earnings come in strong and the 21-day EMA holds, be ready for more upside.

CHART 2: DAILY CHART OF THE NASDAQ 100 INDEX. The 21-day EMA could act as a first support level, and if the index falls below it, expect a significant pullback. But if earnings come in strong, then there could be further upside.Chart source: StockCharts.com (click chart for live version). For educational purposes.

Looking at the Year-to-Date PerfChart of the five Big Tech stocks reporting earnings, META is the clear winner and GOOGL is the laggard.

CHART 3: PERFCHART OF MSFT, GOOGL, META, AMZN, AND AAPL. META is the clear winner in the group.Chart source: StockCharts.com. For educational purposes.

If you look at the price charts of all five stocks using the layout feature in StockChartsACP (see below), you can see that META and AMZN are struggling to hold on to the support of the 21-day EMA, AAPL and MSFT are hanging on above their 21-day EMA, and GOOGL is trading below its 21-day EMA and 50-day simple moving average (SMA).

CHART 4: COMPARING META, MSFT, AMZN, GOOGL, AND AAPL. The 21-day EMA is an important support level for these stocks. A close below that level could mean further pullbacks ahead.Chart source: StockChartsACP. For educational purposes.

Since Tech stocks have seen a significant rise in their value, it’s possible they may be overvalued. But with AI in the picture, it could mean more upside moves, especially if the integration of AI works in their favor.

Then There’s the Fed

According to the CME FedWatch Tool, there’s a 98.9% chance the Fed will raise interest rates by 25 basis points on July 26. Core inflation still has to drop by more than two percentage points to reach the 2% goal the Fed is trying to achieve. When Fed Chairman Jerome Powell takes the podium on Wednesday, investors will be eager to hear if past interest rate hikes have weaved into the economy, and what it would take to reach the 2% inflation goal.

Final Thoughts

There’s a lot to focus on next week—earnings and interest rates. Will Tech stocks propel the equity market higher despite economic uncertainties? It’ll be a week you don’t want to miss.

End of Week Wrap Up

US equity indexes mixed; volatility down

  • $SPX up 0.03% at 4536.32, $INDU up 0.01% at 35228.48; $COMPQ down 0.22% at 14032.81
  • $VIX down 2.64% at 13.62
  • Best performing sector for the week: Energy
  • Worst performing sector for the week: Communication Services
  • Top 5 Large Cap SCTR stocks: Super Micro Computer (SMCI), NVIDIA Corp. (NVDA), Palantir Technologies (PLTR), DraftKings (DKNG), Coinbase Global (COIN)

On the Radar Next Week

  • Big Tech Earnings. Some companies reporting next week: Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOGL). Other companies reporting include Verizon (VZ) Coca-Cola (KO), AT&T (T), Boeing (BA), McDonalds (MCD), Chipotle (CMG), Ford (F), and many more.
  • June New Home Sales
  • Fed Interest Rate Decision
  • Fed Press Conference

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at StockCharts.com. She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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Mortgage points may help homebuyers lower monthly costs amid high interest rates. How to know if this strategy is right for you

As interest rates have climbed, homebuyers have been confronted with higher borrowing costs.

That has led more home purchasers to opt for one strategy, purchasing mortgage points, as a way to defray higher monthly payments.

Mortgage points let buyers pay an upfront fee to lower the interest rate on their loans. In some cases, sellers will help to buy down rates to help ease transaction costs.

Almost 45% of conventional primary home borrowers bought mortgage points in 2022 to reduce their monthly mortgage payments, a trend that has continued into this year, according to recent research from Zillow.

That is up from 29.6% in 2021, when interest rates were lower.

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The 30-year fixed-rate mortgage currently averages 6.7% according to Freddie Mac, up from 5.8% a year ago. The 15-year fixed-rate mortgage now averages about 6%, up from 4.8% a year ago.

This week, the Federal Reserve decided to pause the interest rate hikes it has put in place to combat high inflation.

As rates stay higher, those who are in the market for a home lose purchasing power. Some experts have urged buyers to consider purchasing mortgage points to lower their monthly payments.

Stephanie Grubbs, a licensed real estate agent at the Zweben team at Douglas Elliman Real Estate in New York, recently did exactly that when one of her clients lowered their asking price.

“This fabulous apartment just had a price reduction, which means you can use those savings to buy down your rate,” Grubbs wrote in the updated ad.

Grubbs, a former financial advisor, said her firm started bringing up the strategy more when the Fed started hiking interest rates.

“In an effort to try to be creative, we talk to sellers about offering to buy down a rate,” Grubbs said.

Other experts say buyers purchasing mortgage points can be a great strategy for the right situation.

That goes particularly if a buyer can afford the extra upfront costs.

Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability.

Nicole Bachaud

senior economist at Zillow

Mortgage points refer to the percentage amount of the loan. Typically, one point is worth 1% of the loan value, according to Nicole Bachaud, senior economist at Zillow.

If the loan value is $300,000, one point would typically cost $3,000 and lower the interest rate 0.25 percentage points, she said.

“Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability,” Bachaud said.

In addition to higher upfront costs, home buyers should also weigh other factors before buying mortgage points.

Collective Wealth Partners, a boutique advisory firm in Atlanta. Elliott is also a member of the CNBC Financial Advisor Council.

However, if you buy points and then refinance, that will not allow enough time for your upfront payment to appreciate, Elliott said.

Another important consideration is your timeline for how long you plan to live in the home.

With rates and home prices high, that means closing costs are also elevated, Elliott said.

Consequently, if you move before three to five years, you may take a bigger financial hit, she said.

“There could be a huge loss if you can’t stay in that property long enough to have those expenses amortized out over the time that you’re there,” Elliott said.

Consider other alternatives

Collective Wealth Partners CEO on how to start investing in real estate

Factor in the unknowns

How well any homebuying strategy fares in the long run depends on one big unknown: how the Federal Reserve will handle interest rates going forward.

The latest projections from the central bank call for two more rate hikes this year.

While today’s rates feel high, Elliott said she often reminds people that homebuyers in the 1980s would have loved to have had access to 6% mortgage rates.

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