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Analysis – Investors cautious on US stocks despite Fed rate hikes likely ending soon

Louis Krauskop

NEW YORK, March 23 (Reuters)The end of the Fed rate hike cycle may be in sight, but investors have many concerns about the US stock market.

The U.S. Federal Reserve (Fed) met Wednesday at its first meeting since the collapse of two U.S. banks and the troubled European lender Credit Suisse earlier this month. interest rate hike It fell by a quarter of a percentage point, signaling that it was on the verge of pausing further increases in borrowing costs.

This was the message many investors were waiting for after the S&P 500 fell by nearly a fifth last year as the Fed launched its most aggressive monetary policy tightening cycle since the 1980s. But there are also concerns that the rapid rise in interest rates is just beginning to spill over into the U.S. economy, and we are wary of jumping into equities amid turmoil in the banking sector, deteriorating corporate earnings prospects and a looming recession. It’s still

“The macroeconomic policy and economic outlook is more complex than it was two weeks ago,” said Anthony Saglimbane, chief market strategist at Ameriprise Financial.

“In that very uncertain environment, you have to be a little more cautious and a little more defensive,” he said.

stock fell S&P 500 Benchmarks on Wednesday .SPX It closed down 1.65% after swinging between gains and losses at Fed Chairman Jerome Powell’s post-meeting press conference.NASDAQ Composite .IXIC 1.6% decrease.

What made the market even more uneasy was the comment Treasury Secretary Janet Yellen told lawmakers Wednesday that the Federal Deposit Insurance Corporation (FDIC) was not considering “blanket insurance” for deposits resulting from recent disputes in the sector.

Powell said stress in the financial industry had sparked a credit crunch, with a “significant” impact on an economy that Fed officials expect will slow further this year than previously thought. Said it could be given.

Analysts at Capital Economics believe a recession is more likely this year, saying, “While the exact impact of financial market turmoil is uncertain, we believe the Fed’s growth projections are overly optimistic.” wrote.

Meanwhile, while the Fed’s latest policy statement no longer states that “continued hikes” in interest rates are likely to be appropriate, Powell said inflation is still well above the Fed’s target. He said policymakers were unlikely to cut interest rates this year. of many investors.

Futures markets are now pricing in a Fed rate of about 4.25% by the end of the year, compared to the 4.75% to 5% range that took effect Wednesday.

Charlie Ripley, senior investment strategist at Allianz Investment Management, recently increased allocations to cash. Powell also said he doesn’t think a rate cut is warranted at some point this year, so it’s likely that this whole long-term uptrend theme is playing out.

uncertain outlook

With the S&P 500 up 2.5% since the end of 2022, stocks are resilient in the face of uncertainty this year.

Some market conditions are seen as positive for stocks, as many investors’ portfolios are still light on the stock market and strong buying is likely when the market mood changes. Deutsche Bank’s Composite Equity Positioning Index saw its biggest drop in 15 months last week, bank strategists said in a March 17 memo.

The decline in US Treasury yields from recent highs has also provided a tailwind for the big tech and growth companies that weigh heavily on equities, especially the S&P 500. Yields move inversely to bond prices.

Still, some investors believe yields could rise again. Sonal Desai, chief investment officer at Franklin Templeton Fixed Income, said he was skeptical of the recent rally in U.S. Treasuries because inflation remains high.

“I definitely think there will be more volatility,” said Desai, who expects 10-year U.S. Treasury yields to bounce back to 4% this year from 3.45% currently.

S&P 500 earnings are expected to fall 3.2% in the fourth quarter of 2022, followed by year-over-year declines in the first and second quarters, according to Refinitiv IBES, also a potential pain point for corporate earnings. is.

It may not fully reflect the impact of the potential slowdown brought on by the banking crisis, as many analysts currently expect.

“I don’t think the market will be competitive,” said James Reagan, director of wealth management research at DA Davidson. “There will be some pressure on earnings going forward.”

US stock market during Federal Reserve hiking cyclehttps://tmsnrt.rs/409qOkk

(Reporting by Lewis Krauskopf; additional reporting by Davide Barbuscia; editing by Ira Iosebashvili and Bradley Perrett)

((lewis.krauskopf@thomsonreuters.com646-223-6082; Reuters message: lewis.krauskopf.thomsonreuters.com@reuters.netTwitter: @LKrauskopf))

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

Summarize this content to 100 words
Louis Krauskop

NEW YORK, March 23 (Reuters) – The end of the Fed rate hike cycle may be in sight, but investors have many concerns about the US stock market.
The U.S. Federal Reserve (Fed) met Wednesday at its first meeting since the collapse of two U.S. banks and the troubled European lender Credit Suisse earlier this month. interest rate hike It fell by a quarter of a percentage point, signaling that it was on the verge of pausing further increases in borrowing costs.
This was the message many investors were waiting for after the S&P 500 fell by nearly a fifth last year as the Fed launched its most aggressive monetary policy tightening cycle since the 1980s. But there are also concerns that the rapid rise in interest rates is just beginning to spill over into the U.S. economy, and we are wary of jumping into equities amid turmoil in the banking sector, deteriorating corporate earnings prospects and a looming recession. It’s still
“The macroeconomic policy and economic outlook is more complex than it was two weeks ago,” said Anthony Saglimbane, chief market strategist at Ameriprise Financial.

“In that very uncertain environment, you have to be a little more cautious and a little more defensive,” he said.
stock fell S&P 500 Benchmarks on Wednesday .SPX It closed down 1.65% after swinging between gains and losses at Fed Chairman Jerome Powell’s post-meeting press conference.NASDAQ Composite .IXIC 1.6% decrease.
What made the market even more uneasy was the comment Treasury Secretary Janet Yellen told lawmakers Wednesday that the Federal Deposit Insurance Corporation (FDIC) was not considering “blanket insurance” for deposits resulting from recent disputes in the sector.
Powell said stress in the financial industry had sparked a credit crunch, with a “significant” impact on an economy that Fed officials expect will slow further this year than previously thought. Said it could be given.
Analysts at Capital Economics believe a recession is more likely this year, saying, “While the exact impact of financial market turmoil is uncertain, we believe the Fed’s growth projections are overly optimistic.” wrote.
Meanwhile, while the Fed’s latest policy statement no longer states that “continued hikes” in interest rates are likely to be appropriate, Powell said inflation is still well above the Fed’s target. He said policymakers were unlikely to cut interest rates this year. of many investors.

Futures markets are now pricing in a Fed rate of about 4.25% by the end of the year, compared to the 4.75% to 5% range that took effect Wednesday.
Charlie Ripley, senior investment strategist at Allianz Investment Management, recently increased allocations to cash. Powell also said he doesn’t think a rate cut is warranted at some point this year, so it’s likely that this whole long-term uptrend theme is playing out.

uncertain outlook
With the S&P 500 up 2.5% since the end of 2022, stocks are resilient in the face of uncertainty this year.
Some market conditions are seen as positive for stocks, as many investors’ portfolios are still light on the stock market and strong buying is likely when the market mood changes. Deutsche Bank’s Composite Equity Positioning Index saw its biggest drop in 15 months last week, bank strategists said in a March 17 memo.
The decline in US Treasury yields from recent highs has also provided a tailwind for the big tech and growth companies that weigh heavily on equities, especially the S&P 500. Yields move inversely to bond prices.
Still, some investors believe yields could rise again. Sonal Desai, chief investment officer at Franklin Templeton Fixed Income, said he was skeptical of the recent rally in U.S. Treasuries because inflation remains high.

“I definitely think there will be more volatility,” said Desai, who expects 10-year U.S. Treasury yields to bounce back to 4% this year from 3.45% currently.
S&P 500 earnings are expected to fall 3.2% in the fourth quarter of 2022, followed by year-over-year declines in the first and second quarters, according to Refinitiv IBES, also a potential pain point for corporate earnings. is.
It may not fully reflect the impact of the potential slowdown brought on by the banking crisis, as many analysts currently expect.
“I don’t think the market will be competitive,” said James Reagan, director of wealth management research at DA Davidson. “There will be some pressure on earnings going forward.”
US stock market during Federal Reserve hiking cyclehttps://tmsnrt.rs/409qOkk
(Reporting by Lewis Krauskopf; additional reporting by Davide Barbuscia; editing by Ira Iosebashvili and Bradley Perrett)
((lewis.krauskopf@thomsonreuters.com646-223-6082; Reuters message: lewis.krauskopf.thomsonreuters.com@reuters.netTwitter: @LKrauskopf))

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

https://www.nasdaq.com/articles/analysis-investors-cautious-on-u.s.-stocks-even-though-fed-hikes-may-soon-end Analysis – Investors cautious on US stocks despite Fed rate hikes likely ending soon

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