Jim Cramer’s top 10 things to watch in the stock market Friday

My top 10 things to watch Friday, Nov. 3

1. U.S. stocks climb higher in premarket trading Friday, with S&P 500 futures up 0.46% after rising nearly 5% over the previous four sessions. Equities remain on track for their biggest weekly gain of the year. Government bonds also continue to rally this week, with the yield on the 10-year Treasury pulling back to around 4.5%. Oil prices tick up 0.78%, bringing West Texas Intermediate crude to just above $83 a barrel.

2. U.S. employment growth slows in October, with the economy adding just 150,000 jobs, according to the Labor Department’s monthly nonfarm payrolls report. That compares with September’s revised gain of 297,000 jobs and a Dow Jones estimate for October of 170,000 jobs. The news could take further pressure off the Federal Reserve in its ongoing battle to bring down inflation through higher interest rates.

3. Club holding Apple (AAPL) delivers an uneven fiscal fourth-quarter, with shares falling on lower-than-expected guidance for the current quarter. Analysts are using the results to reset expectations and lower price targets. Apple stock is down 1.7% in premarket trading, at $174.57 a share.

4. Semiconductor firm Skyworks Solutions (SWKS) reports a weak quarter as a result of Apple’s slowdown, prompting a slate of price-target reductions Friday. Barclays lowers its price target on the stock to $90 a share, down from $115, while maintaining an overweight rating on shares.

5. The takeaway from Club holding Starbucks‘ (SBUX) fiscal fourth-quarter beat is that the coffee maker needs so many more stores both in the U.S. and in China, while it’s barely begun to tackle India. Baird on Friday raises its price target on Starbucks to $110 a share, up from $100, while reiterating a neutral rating.

6. Barclays on Friday raises its price target on Club name Eli Lilly (LLY) to $630 a share, up from $590, while maintaining an overweight rating on the stock. The call seems like a good idea after Eli Lilly delivered solid quarterly results on the back of its blockbuster drug Mounjaro.

7. Shares of cybersecurity firm Fortinet (FTNT) plunge nearly 20% in early trading after its third-quarter results miss on analyst expectations, while providing a weak outlook for the current quarter. Multiple Wall Street firms downgrade Fortinet Friday on the weak quarter and signs secure networking is seeing slower growth.

8. Barclays lowers it price target on Clorox (CLX) to $115 a share, down from $118, while maintaining an underweight rating on the stock — and that seems harsh. The firm calls Clorox’s reduced outlook “prudent given the uncertainty ahead.” Clorox warned last month that an August cyber attack had significantly weighed on sales and profits.

9. KeyBanc upgrades Uber Technologies (UBER) to overweight from a neutral-equivalent rating, with a $60-per-share price target. The firm says Uber’s expense discipline should continue to drive earnings and free cash flow, while advertising “provides a lever to keep prices low to drive volumes.” Uber is set to report third-quarter results on Nov. 7.

10. Gordon Haskett upgrades Ross Stores (ROST) to buy from accumulate, with a $135-per-share price target. The firm says its third-quarter proprietary store manager survey “paints a positive picture” for both Ross and Club name TJX Companies (TJX).

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These 10 portfolio names outperformed the stock market amid the October decline

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 26, 2023.

Brendan Mcdermid | Reuters

Despite a downbeat month for stocks and mounting macroeconomic uncertainty, several Club names outperformed the market in October — and landed in the green.

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Jim Cramer’s top 10 things to watch in the stock market Tuesday

My top 10 things to watch Tuesday, Oct. 31

1. U.S. stocks edge up in premarket trading Tuesday, with S&P 500 futures rising 0.15%. The move comes after equities rallied Monday, with the S&P rising to its highest level in two months. Meanwhile, the yield on the 10-year Treasury was hovering around 4.8%. Oil prices are up around 0.6%, with West Texas Intermediate crude trading at $82.80 a barrel. Broadly, we’re seeing end-of-the-month shenanigans in a still oversold market.

2. Club holding Caterpillar (CAT) delivers a third-quarter earnings beat Tuesday, even as the stock tumbles roughly 4% on lackluster guidance. Nothing matters except the operating margin going lower in the fourth quarter.

3. Club name GE HealthCare Technologies (GEHC) outpaces earnings estimates Tuesday, bolstered by a recovery in demand for surgical procedures. The company also raises the low end of its full-year guidance. The stock is having a muted reaction, with shares up slightly, at around $63 apiece.

4. A Wall Street Journal analysis Tuesday argues Club holding Apple (AAPL) will face continued headwinds from China, while its “lucrative” relationship with Club name Alphabet (GOOGL) could also be at risk. It’s a classic negative piece on the company that crystalizes the ‘hate Apple trade’ that’s been going on.

5. MoffettNathanson downgrades Lyft (LYFT) to sell from neutral, while lowering its price target on the stock to $7 a share, down from $10. The firm expects margin compression at the rideshare company, and any long-term guidance to “likely disappoint.” Lyft is set to report third-quarter results on Nov. 8.

6. Baird upgrades one of our favorite technology defense players, L3Harris Technologies (LHX), to outperform from neutral, citing increased funding for defense globally. The firm also raises its price target on the stock to $216 a share, up from $198.

7. Oil giant BP PLC (BP) reports a sharp drop in profits year-over-year for the third quarter, sending shares roughly 4% lower in early trading Tuesday. Must they do a deal, too? There are only so many choices.

8. MoffettNathanson upgrades Roku Inc. (ROKU) to neutral from sell, citing the streaming-device maker’s focus on profitability and free cash flow. In short, the company got its act together and is becoming more dominant.

9. Shares of VF Corporation (VFC), the maker of Vans sneakers, are down nearly 9% in premarket trading after the company withdrew its full-year revenue and profit forecasts Monday. There are so many things wrong, but I think that CEO Bracken Darrell can pull it off. He turned around Logitech International (LOGI) and tripled the S&P over the decade in which he was in the top job.

10. DA Davidson adds Ulta Beauty (ULTA) to its “Best-of-Breed Bison” list. The firm reiterates a buy rating on the stock and a $495-a-share price target.

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Oil and natural gas prices are on different paths. Here’s what has been driving the moves

Oil prices eased in Asian as concerns over slow demand from top crude importer China grew after bearish trade and inflation data, outweighing fears over tighter supply arising from output cuts by Saudi Arabia and Russia.

David Mcnew | Getty Images News | Getty Images

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Jim Cramer’s top 10 things to watch in the stock market Thursday

My top 10 things to watch Thursday, Sept. 14

1. U.S. equities edge up in premarket trading, with investors largely betting the Federal Reserve won’t raise interest rates further when the central bank convenes next week. The S&P 500 is up 0.33%, while the Nasdaq Composite is 0.24% higher. U.S. government bond yields tick up, with that of the 10-year Treasury hovering just below 4.3%.

2. Oil prices continue to climb higher, with West Texas Intermediate crude, the U.S. oil benchmark, climbing above $90 a barrel for the first time since last November. Club oil holdings Coterra Energy (CTRA) and Pioneer Natural Resources (PXD) are up 1.48% and 0.88%, respectively, in early trading. Here’s the Club’s take on oil’s 10-month highs.

3. U.S. wholesale inflation climbs more than expected in August, according to the Labor Department’s monthly producer price index. At the same time, U.S. retail sales come in higher than predicted for last month, the Commerce Department reports, though the gains are largely driven by higher gasoline prices.

4. The European Central Bank raises interest rates by a quarter percentage point, bringing its deposit rate to a record-high 4%. The increase is the ECB’s 10th-conesecutive rate hike.

5. British chip designer Arm Holdings, owned by SoftBank Group (SFTBF), sets its highly anticipated initial public offering at $51 a share, valuing the company at over $54 billion. At this price, there’s not a lot of room for error. The firm will start trading Thursday on the Nasdaq under the stock symbol ARM.

6. The European Union launches an “anti-subsidy” investigation into China’s electric-vehicle companies, with Beijing calling the move “blatant protectionism.” Will Europe go 27.5% tariffs on Chinese cars? This could be a real issue for China.

7. China’s central bank is cutting the reserve requirement ratio for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points from Sept. 15, in the government’s latest effort to prop up its faltering economy.

8. Jim Farley, the CEO of Club holding Ford Motor (F), rejects allegations by United Auto Workers President Shawn Fain that the automaker is not taking bargaining seriously ahead of a Thursday night strike deadline. Here’s the Club’s take on how a union strike could impact Ford.

9. KeyBank raises its price target on Chip designer Cadence Design Systems (CDNS) to $290 a share, up from $270, while reiterating an overweight rating on the stock. The firm’s call comes after KeyBank analysts met with early users of the company’s new AI-enabled EDA design portfolio. Cadence is a partner of AI chipmaker and Club holding Nvidia (NVDA).

10. Wolfe Research upgrades ecommerce firm Etsy Inc. (ETSY) to outperform, from peer perform, with a $100-per-share price target. The firm cites “many paths” for Etsy shares to outperform over the next 12-18 months.

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These non-tech stocks are ‘back from the dead.’ Here’s where we stand

Workers walk towards Halliburton Co. “sand castles” at an Anadarko Petroleum Corp. hydraulic fracturing (fracking) site north of Dacono, Colorado, U.S., on Tuesday, Aug. 12, 2014.

Jamie Schwaberow | Bloomberg | Getty Images

A number of Club stocks that were unloved on Wall Street earlier in the year have seen their fortunes rebound in recent months, including oilfield-services firm Halliburton (HAL) and industrial Caterpillar (CAT) — creating potential opportunities to lock in gains.

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Oxy CEO Vicki Hollub doesn’t seem worried about White House pressure on buybacks, oil prices

Occidental (long known as Occidental Petroleum) was the No. 1-performing stock in S&P 500 last year, but it didn’t get there by way of massive growth in oil and gas production. While fossil fuels have the tailwind of the Russia-Ukraine war resetting energy policy and priorities around the globe, on Wall Street, it’s the recent capital discipline displayed by energy companies that has been as a big a factor in market performance.

The boom and bust cycles of the past when oil rig count exploded in line with the latest high price in crude oil are now seen as a cautionary tale. “We’ve seen that movie before,” Hess CEO John Hess said at the annual CERAWeek energy conference on Tuesday. That new fiscal approach from the energy patch has not made the White House happy, especially when oil prices and oil company profits were at a peak last year. The blowback from President Biden has continued, with recent buyback programs from companies including Chevron attracting renewed scrutiny. But when you listen to the way Chevron CEO Mike Wirth talked about its plans to increase the level of buybacks for shareholders, it seems the White House was an afterthought — if any thought was given to it.

Long-time energy sector analyst Paul Sankey put it this way after the recent Chevron earnings call: “I would be absolutely certain many in the White House own Chevron stock in their 401ks. In DC, it is clear that politicians have no comprehension of 1) what a buyback is and 2) how many Americans own stocks in their pension funds/401ks. The tone of Mike’s delivery, and he is a relaxed and confident guy, indicated that they were not really considering Washington, D.C.”

Wirth isn’t the only one sitting in the driver’s seat at a major oil and gas company who seems to have little time to worry about the way the White House views stock buybacks.

Occidental’s approach has attracted the world’s most-famous investor, with the company quickly growing to be among the top 10 stocks held by Warren Buffett’s Berkshire Hathaway over the past several years (second to Chevron among Buffett’s public energy stock holdings). Buffett recently made clear (for the umpteenth time) what he thinks about politicians weighing in on buybacks.

With roughly 12% production growth, Occidental could produce more. And in fact, one point the White House has made is that oil companies are spending too much on “enriching” shareholders and not enough on producing more. But when asked by CNBC’s Brian Sullivan on Monday at CERAWeek if the company could produce more, Occidental CEO Vicki Hollub answered in a direct way that defies any concern about political pressure:

“We do,” Hollub said, have the ability to produce more oil, “but we have a value proposition that includes an active buyback program and also a growing dividend and we always want to make sure we max out our return on capital employed. So we are very careful with how we structure our capital program on an annual basis to make sure we still have sufficient cash to buy back shares.”

Hess CEO on oil and gas demand

This year, Occidental authorized a new $3 billion share repurchase authorization and a 38% increase to its dividend. It completed $3 billion in share repurchases last year, with $562 million of repurchases in the fourth quarter.

“Look, we are a stronger company than we were a few years ago, so the numbers are bigger but the patterns are no different,” Chevron’s CEO Wirth told CERA chairman Daniel Yergin on Monday at the conference, referring to Chevron’s financial priorities – sustaining and growing its dividend, reinvesting capital to bring supplies to market (its budget is up 30% year over year), maintain a strong balance sheet for ups and downs in the commodities cycle, and returning excess cash to shareholders. “We could stack it up on the balance sheet,” Wirth said, but he added, “It’s their cash.”

“Some things get more scrutiny at certain points in time than others,” he told Yergin when asked multiple times about the political “heat.”

What to expect in gas prices at the pump

Frederick Forthuber, president of Oxy Energy Services, said separately at CERAWeek that U.S. oil production will grow by about 500,000 barrels per day this year, with 80% or 90% of that coming from the Permian basin, according to Reuters. Hollub noted in her CNBC interview that current capacity as measured in total barrels produced per day — nearly 12 million bpd in 2022 and projected by the EIA to reach over 12 million bpd this year — has not changed significantly from the pre-pandemic world, though the EIA forecast would be a new record. Its outlook for gas prices is an average $3.57/gallon this year.

Last year, U.S. oil production grew by 500,000 barrels, a figure noted by Pioneer Natural Resources CEO Scott Sheffield during an interview with CNBC from CERAWeek, and he added that was well short of the most optimistic estimates to add one million barrels this year. When asked whether it wasn’t the energy industry’s job to increase production, Sheffield said, “No, our model has changed. We just don’t have that potential to grow U.S. production ever again.”

He added we may get to 13 million barrels in two to three years.

For consumers still worried about the price of gas at the pump, which has come down significantly along with crude prices from last summer’s high, don’t look to Hollub for more relief. Gas prices are right where they should be right now, she says, and are likely to stay this way.

“Prices are in a good place right now, in the $75-$80 range. That’s a sustainable price scenario for the industry to continue to be healthy and gas prices at the pump are not so bad at this price.”

In fact, she described the situation as “optimum.”

Crude has traded between $73 and $80 during the past four months.

“I do believe the mid-cycle price of oil is close to $80, maybe $75 to $80,” Hollub said. “In that price regime we can balance supply with demand over time,” she added.

If there is risk to gas prices this year, it’s to the upside. “I do think towards the end of the year we will have a little supply issue relative to demand, and it could send prices higher,” she said.

Strategic Petroleum Reserve

While the energy CEOs are showing through their words and actions this year that they aren’t buying the White House “Big Oil” rhetoric and will continue to message to the shareholders they’ve been able to win back, Hollub does expect one notable oil buyer to remain on the sidelines this year: the White House.

Amid high gas prices last year, the Biden administration released the most oil from the Strategic Petroleum Reserve on record, 180 million barrels. While the administration has said it will be replenishing the SPR, Hollub doesn’t expect much buying.

“I think we should have more storage in the SPR and over time the administration will buy that storage back and start to refill, but it’s gonna be hard to do any time in the next couple of years, because I do believe we are in a scenario where prices will be higher.”

Among the reasons oil prices will remain higher?

“Lack of supply and lack of investment in our industry over the years,” Hollub said. “I do think they are going to have a difficult time here in the near term.”

Based on the way the oil CEOs are talking, maybe in more ways than one.

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ExxonMobil, Chevron’s big cash shows cheap gas isn’t coming back

If you want a quick outlook on whether U.S. gas prices are likely to return to pre-Covid levels, a good place to start is earnings reports from Chevron and Exxon in the last week.

The outlook: Don’t count on it. In their fourth-quarter earnings reports, both companies showed clear signs of Big Oil’s renewed focus on managing costs, widening profit margins as oil prices stayed relatively high even after coming down considerably from last year’s highs, and confidence that they will be able to keep passing the rewards back to shareholders.

On Jan. 25, Chevron announced a $75 billion share buyback, which will allow it to use excess cash flow to cut the number of shares by up to as much as 20% — over multiple years and contingent on shares also used for employee options programs and M&A rather than just earnings per share increase. Chevron also raised its dividend to about 3.4%, double that of the Standard & Poor’s 500-stock index. On Jan. 31, Exxon announced it had spent $15.2 billion to acquire stock in 2022 – up from $155 million a year earlier, and authorized another $35 billion this year and next.

The moves are the latest page in the industry’s post-2020 playbook: To satisfy investors who pushed energy stocks down more than 40% in a rising stock market between 2014 and 2019, oil companies slowed down drilling overinvestment that had caused cash-flow losses estimated as high as $280 billion. With the conserved cash, they raised dividends and boosted stock buybacks – moves that helped oil stocks double in the year after the 2020 election, as U.S. gasoline prices rose by more than half.

Rob Thummel, senior portfolio manager at Tortoise Capital Advisors, which advises mutual funds on energy investing, said Chevron and Exxon are in position to increase the dividend, increase production, and buy back stock. “They are doing what mature companies do – generate a lot of cash and return it to shareholders,” he said.

Big oil sees political pushback on buybacks

The industry’s reallocation of money to shareholders from new drilling comes as political leaders, including President Joe Biden, criticize oil companies for not restraining the price of gasoline as crude oil rose from $53 when Biden took office in 2021 to $77.50 now.  Exxon’s fourth-quarter profit margin of almost 14% of revenue compares to 11% a year ago.

“My message to the American energy companies is this: You should not be using your profits to buy back stock or for dividends,” Biden said in October. “Not now. Not while a war is raging. You should be using these record-breaking profits to increase production and refining.”

The White House attacked both companies again this week after the buyback announcements.

In the market, and at the oil companies headquarters, it seems the opinions issued from the White House aren’t much of a factor in setting financial priorities. The price of oil is set on world markets, rather than by individual producers, Thummel said. The role of the Organization of Petroleum Exporting Countries, led by Saudi Arabia, in limiting production is the biggest factor in world prices. U.S. oil production, which does not have a central organization setting prices, has rebounded from a post-Covid low reached in April 2021, and reached 383 million barrels per month in October, closing in on the all-time high of 402 million in December 2019, according to U.S. government data.

Gas prices are also being hit by a loss of refining capacity. Part of this is longer-term, as refiners phased out less profitable facilities during the Covid-related demand drop, and following a wave of mergers forced by declining cash flow and share prices. And part of it stems from temporary shutdowns for maintenance made necessary by the cold wave in much of the country in December, CFRA Research analyst Stewart Glickman said.

Of the two biggest U.S. oil producers, Chevron made the more dramatic changes in the fourth quarter earnings releases, since Exxon had announced its buyback acceleration earlier, Glickman said.

The benchmark now is to spend roughly a third of operating cash flow on capital investment, a third on dividends and a third on stock buybacks. The buybacks can be dialed back if oil prices fall, and would likely be the first big cost cut oil producers would make if crude fell back to $60 a barrel from the current range about $77, he said. Buybacks, unlike dividends, aren’t treated as a “must” by investors each quarter, while cutting a dividend can lead to mass selling by investors.

Chevron is pretty close to Glickman’s recipe, with $49.6 billion of 2022 cash flow yielding $11 billion in dividend payments, $11.3 billion in share buybacks that were accelerating as the year ended to the $15 billion annual pace, and $12 billion in capital investment – enough to boost U.S. production by about 4% even as its international production dropped. Exxon made $76.8 billion in operating cash flow, invested $18 billion back into the business, spent $14.9 billion on dividends and $15.2 billion in stock purchases, according to its cash flow statement.

“What we learned from [earnings announcements] is that the industry is very committed to a conservative approach to spending,” Glickman said. “They could [drill more], but they would have to sacrifice their return thresholds, and neither they nor their shareholders are interested. I don’t blame them.”

Oil production is increasing

Despite the push to pay out more money, the companies have begun to produce slightly more oil in the U.S.

Chevron said its U.S. oil production gain was led by a double-digit increase in the Permian Basin of Texas. Exxon also said Permian production led its U.S. results, rising by nearly 90,000 barrels per day.

“Growth matters when it’s profitable,” Chevron CEO Mike Wirth said on the company’s earnings call on Jan. 27. Chief Financial Officer Pierre Breber said the company’s four major financial goals are dividend growth, buyback growth, capital spending and reducing debt.

Slower growth and cash distribution is the right path for an industry that is growing more slowly, Thummel said, especially since the government is prodding utilities away from relying on natural gas to make electricity and offering consumers tax credits to swap gasoline-powered cars and SUVs for electric models.

In the early part of the last decade, investors applauded energy companies for investing more than their entire operating profit in new wells, believing that hydraulic fracking would propel the sector to a new wave of growth, Glickman said. And while U.S. production more than doubled during the fracking boom, it failed to produce the expected profit. Today, politicians are trying to foster a transition away from fossil fuels, making it dicey for Big Oil to invest in large offshore drilling plans that may need decades to pay off, he added.

“Why on earth would these companies agree to play ball with that kind of attitude?” he said.

The oil companies’ new approach stands in sharp contrast to that of EV maker Tesla, which has resisted shareholder pressure to begin buying back stock as it begins taking share in a market entwined with the oil companies. Tesla has hung on to its cash flow even as it completes a major factory-building campaign that has seen it add new plants in Texas, China, and Germany to its initial production facility in California. The company also produces batteries for its vehicles in Nevada.

That path works for Tesla because it is addressing a fast-growing market for EVs, while oil companies are trying to milk the cash from their existing, low-growth businesses and invest in new ones like carbon capture before current sources of cash flow like gasoline sales begin to shrink, Glickman said. But even Tesla should be returning cash to holders after a sharp decline in shares last year, Wedbush analyst Dan Ives said.

“Our view is that it’s a no-brainer that Tesla should do a buyback now,” Ives said. “Tesla is in a robust position financially and this would send an important signal. The biggest capital spending is in the rearview mirror for now.”

But Tesla’s most obvious short-term use of its $22 billion cash hoard might be preparing for any possible impact on profits of the price cuts it announced Jan. 13.

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Fed expected to slow rate hiking to a quarter point but will stay unrelenting in inflation battle

The Federal Reserve is expected to raise interest rates by just a quarter point but also likely signal it will stay vigilant in its fight against inflation even as it reduces the size of the hikes.

The Fed releases its latest rate decision Wednesday at 2 p.m. ET, and Fed Chair Jerome Powell briefs the media at 2:30 p.m. The expected quarter-point hike follows a half percentage point increase in December, and would be the smallest increase in the federal funds target rate range since the first hike of the cycle last March.

While the meeting is expected to be relatively uneventful, strategists say it could be a challenge for the Fed chief to temper the reaction in financial markets. The markets have been rising as investors expect the central bank might succeed in a soft landing for the economy while also snuffing out inflation sufficiently to move back to easing policy.

“How is he going to tell people to calm down, chill out and don’t get so excited by us getting close to the end of the interest rate increases?” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “He’s going to do that by still saying the Fed’s going to stay tight for a while. Just because he’s done doesn’t mean it’s a quick bridge to an ease.”

Federal Reserve Board Chairman Jerome Powell holds a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022.

Evelyn Hockstein | Reuters

The Fed’s rate hike Wednesday would be the eighth since last March. It would put the fed funds target rate range at 4.50% to 4.75%. That is just a half percentage point away from the Fed’s estimated end point, or terminal rate range of 5% to 5.25%.

“I think he will push back on financial conditions. I think the markets are expecting that. I think people realize how much credit spreads have moved, how much the equity market has moved, how much tech stocks have moved. This month has been extraordinary,” said Rick Rieder, BlackRock’s chief investment officer for global fixed income.

A rally that could dampen the Fed’s efforts

Easy credit and a stock market that is rising too quickly could defeat the Fed’s efforts to chill the economy and crush inflation.

Stocks rallied Tuesday as the Fed began its two-day meeting, capping January’s gain of nearly 6.2% for the S&P 500. The tech sector was up 9.2% for the month. Rates have fallen since the end of the year, with the benchmark 10-year Treasury yield at roughly 3.5%, after it ended December at about 3.9%.

Rieder expects Powell to deliver his comments with a hawkish tone. “I think if he’s hawkish, I think the markets have built that in. I think if he’s not, the market could make another leg,” he said.

In the futures market, fed funds futures continued to price a terminal rate of less than 5%. The futures also show investors expect the Fed to actually reverse policy and cut rates by at least 25 basis points by the end of 2023. A basis point equals 0.01 of a percentage point.

“I think he’s going to be hawkish relative to market pricing,” said Jim Caron, head of macro strategies for global fixed income at Morgan Stanley Investment Management.

Caron said the Fed’s downsizing of its rate hikes will be seen dovish in itself. Prior to December’s 50 basis point hike, the central bank raised rates by 75 basis points four times in a row.

“He wants to defend the validity of the 5% to 5.25% terminal rate [forecast],” said Caron. “At the same time, he sees record housing prices are coming down. Wage inflation is coming down. The auto sector is not doing great. Retail’s not doing so great. The jobs market is doing OK. Wage inflation is coming down but it’s still above comfort levels.”

the unemployment rate rising sharply to 4.6% later this year, from its December level of 3.5%.

The Fed is not expected to make any major changes in its policy statement when it announces the rate hike. Its last statement said that “ongoing increases” in the target rate range will be appropriate in order to reach a policy position that can send inflation back to 2%.

The Fed is making headway against inflation. Personal consumption expenditure core inflation rose by 0.3% in December and was at 4.4% on an annual basis from 4.7% in November, the slowest increase since October 2021

Strategists say the Fed needs more data and will likely wait until at least March to signal how long it could continue to raise interest rates. If it stays at the same pace, there could be two more quarter-point hikes.

The Fed will not be releasing any new forecasts or economic projections Wednesday. Its next forecast is the quarterly release of economic projections at the March meeting, and that is one way markets will get more clues on the intended rate path.

“They don’t want financial conditions to ease all that much, and they don’t have a new set of forecasts to give, so I think what that means is you have fewer changes in the statement and that line about ‘ongoing increases’ is going to stay the same,” said Michael Gapen, Bank of America’s chief U.S. economist.

Gapen said it will be difficult for Powell to sound too hawkish. “Actions speak louder than words. If they decelerate [the size of rate hikes] for the second straight meeting in a row, it’s hard to back that up with overtly hawkish language,” he said.

Boockvar said Powell should emphasize how the Fed will keep rates at higher levels, despite the market view that it will soon cut rates. “Powell is more focused on inflation going down and staying down than trying to help the S&P 500,” said Boockvar. “His legacy is not going to be determined by where credit spreads are or where the S&P is going. It’s going to be determined by whether he slayed inflation and it stayed down.”

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