Tag: securities

How 10-year Treasurys could produce 20% returns, according to UBS

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Carnage in the bond market in September could tee up an opportunity for investors to earn big returns on U.S. government debt in a year.

Owners of 10-year Treasury
BX:TMUBMUSD10Y
notes at recent yields of around 4.5% could reap up to 20% in total returns in a year if the U.S. economy stumbles into a recession, according to UBS Global Wealth Management.

The key would be for U.S. debt to rally significantly as investors scramble for safety in the roughly $25 trillion treasury market.

“U.S. yields remain well above long-term equilibrium levels, providing scope for them to fall as the macroeconomic outlook becomes more supportive for bonds,” a team led by Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, wrote in a Friday client note.

Their base-case call is for the 10-year Treasury yield to fall to 3.5% in 12 months, with it easing back to 4% in an upside scenario for growth, and for the economy’s benchmark rate to tumble as low as 2.75% in a downside scenario of a U.S. recession.

“That would translate into total returns over the period of 14% in our base case, 10% in our upside economic scenario, and 20% in our downside scenario.”

See: The market ‘may be overpaying you’ on a 10-year Treasury, says Lloyd Blankfein

A rally in Treasury debt could help boost funds that track the Treasury market and the broader U.S. bond sector. The popular iShares 20+ Year Treasury Bond ETF
TLT
was down 10.9% on the year through Friday, while the iShares Core U.S. Aggregate Bond ETF
AGG
was 3% lower, according to FactSet.

A tug of war has been developing in the Treasury market, with fear gripping investors this week as bond yields spike in the wake of signals last week from the Federal Reserve that interest rates may need to stay higher for longer than many on Wall Street anticipated.

“Bond vigilantes” unhappy about the U.S. deficit have been demanding higher yields, while households and hedge funds have been piling into Treasury securities since the Fed began raising rates in 2022.

Much hinges on how painful things get if rates stay high, which would ratchet up borrowing costs for households, companies and the U.S. government as the Fed works to get falling inflation down to its 2% target.

Hedge-fund billionaire Bill Ackman this week said he thinks Treasury yields are going higher in a hurry, as part of his bet that the 30-year Treasury yield
BX:TMUBMUSD30Y
has more room to climb.

The 10-year Treasury edged lower to 4.572% on Friday, after adding almost 50 basis points in September, which helped the stock market reclaim some lost ground in a dismal month, while the 30-year Treasury yield pulled back to 4.709%, according to FactSet.

The Dow Jones Industrial Average
DJIA
posted a 3.5% decline in September, its biggest monthly loss since February, the S&P 500 index
SPX
fell 4.8% and the Nasdaq Composite Index
COMP
shed 5.8% for the month.

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October 1, 2023
‘Anxiety’ high as stock market falls, bond yields rise — what investors need to know after S&P 500’s worst month of 2023

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U.S. stocks and bonds are both falling again, with the S&P 500 just wrapping up its worst quarterly performance in a year after another surge in Treasury yields.

“That creates a lot of anxiety,” as there’s still a fair amount of “investor PTSD” from last year, when markets were rocked by losses in both equities and bonds, said Phil Camporeale, a portfolio manager for J.P. Morgan Asset Management’s global allocation strategy, by phone.

But it’s not the same environment.

Last year was about the Federal Reserve rushing to tame runaway inflation with rapid interest-rate hikes after being “behind the curve,” he said. Now investors are grappling with a surge in Treasury yields after the Fed in September doubled its U.S. growth forecast this year to 2.1%, according to Camporeale, pointing to the central bank’s latest summary of economic projections.

“This is your kiss-your-recession-goodbye trade,” he said, with sharp market moves in September reflecting the notion that “the Fed is not easing anytime soon.”

The U.S. labor market has been strong despite the central bank’s aggressive tightening of monetary policy, with the unemployment rate at a historically low 3.8% in August. In September, the Fed projected the jobless rate could move up to 4.1% by the end of next year, below its previous forecast from June.

“Inflation is falling,” Camporeale said. “The most important metric right now is the labor market.”

As he sees it, investors are worried that the Fed will hold interest rates higher for longer should the unemployment rate remain low and the labor market “tight.” The Fed projected in September that it could raise rates once more this year before reaching the end of its hiking cycle, with fewer potential rate cuts penciled in for 2024 than previously forecast.

Investors expect to get a look at the U.S. employment report for September this coming week, with nonfarm payrolls data scheduled to be released on Oct. 6.

See: Government shutdown averted for now as Congress approves 45-day funding bridge

Meanwhile, the U.S. stock market ended mostly lower Friday, with the Dow Jones Industrial Average
DJIA,
S&P 500
SPX
and Nasdaq Composite
COMP
all closing out September with monthly losses as investors weighed fresh data on inflation.

A reading Friday of the Fed’s preferred inflation gauge showed that core prices, which exclude volatile food and energy categories, edged up 0.1% in August. That was slightly less than expected. Meanwhile, the core inflation rate slowed to 3.9% over the 12 months through August.

But headline inflation measured by the personal-consumption-expenditures price index rose more than the core reading on a month-over-month basis, as higher gas prices fueled its increase.

S&P 500’s worst month of 2023

Investors have been anxious that the Fed may keep rates high for longer to bring inflation down to its 2% target.

Friday’s close left the S&P 500 logging its worst month since December, dropping 4.9% in September for back-to-back monthly losses. The S&P 500 sank 3.6% in the third quarter, suffering its biggest quarterly loss since the three months through September in 2022, according to Dow Jones Market Data.

The U.S. stock market has been startled by surging bond yields following the Fed’s policy meeting in September, after being jolted by the rise in Treasury rates in August.

“The price to pay for a resilient economy is higher yields,” said Steven Wieting, chief economist and chief investment strategist at Citi Global Wealth, in an interview. “We’re probably near the peak in yields.”

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
ended September at 4.572%, after rising just days earlier to its highest level since October 2007, according to Dow Jones Market Data. Yields and debt prices move opposite each other.

But for Camporeale, it’s still too early to venture out to the back end of the U.S. Treasury market’s yield curve to add duration to bondholdings. That’s because the yield curve is not yet “re-steepened” and he views the U.S. economy as currently on course for a soft landing with rates staying higher for longer.

“If you avoid recession, why should you have a lower yield as you go out in time?” said Camporeale. “You should be compensated for having more yield as you go out in time if you avoid recession, not less.”

The 2-year Treasury rate
BX:TMUBMUSD02Y
finished September at 5.046%, continuing to yield more than 10-year Treasury notes.

The yield curve has been inverted for a while, with short-term Treasurys offering higher rates than longer-term ones. The situation is being monitored by investors because historically such inversion has preceded a recession.

“If we were nervous about growth we would be buying the 10-year part of the curve or the 30-year part of the curve,” said Camporeale. “But we are not doing that right now.”

As for asset allocation, he said he’s now neutral stocks and overweight U.S. high-yield credit, particularly bonds with shorter durations of one to three years.

Camporeale sees junk bonds as a “nice” trade as he is not expecting a recession in the next 12 months and they are providing “enticing” yields versus the U.S. equity market, which probably has most of its returns in “versus what we think you get through the rest of the year.”

The S&P 500 index was up 11.7% this year through September, FactSet data show.

While watching for any signs of deterioration in the labor market, Camporeale said he now anticipates the earliest the Fed may cut rates is in the second half of next year. To his thinking, the recent move higher in 10-year Treasury yields was appropriate “in a world where maybe the yield curve has to re-steepen.”

‘Pain trade’

Bond prices in the U.S. broadly dropped in September along with the stocks.

The iShares Core U.S. Aggregate Bond ETF
AGG
was down 2.6% last month on a total return basis, bringing its total loss for the third quarter to 3.2%, according to FactSet data. That was the fund’s worst quarterly performance since the third quarter of 2022.

The ETF, which tracks an index of investment-grade bonds in the U.S. such as Treasurys and corporate debt, has lost 1% on a total return basis so far this year through September, FactSet data show. Meanwhile, the iShares 20+ Year Treasury Bond ETF
TLT
has seen a total loss of 9% over the same period.

“Few investors want to call the top for peak rates,” said George Catrambone, head of fixed income at DWS, in a phone interview. Some bond investors had started to extend into long-term Treasurys in July. “That’s been the pain trade, I think, ever since then,” said Catrambone.

As for the equity market, the speed of the move up in 10-year Treasury yields hurt stocks, with the rate climbing “well beyond what many assumed would be the upper end,” according to Liz Ann Sonders, chief investment strategist at Charles Schwab.

With higher rates pressuring equity valuations, “clearly what’s going to matter is third-quarter-earnings season, once that kicks in” during October, she said by phone. Company “earnings are going to have to start to do some more heavy lifting.”

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October 1, 2023
Why stocks are likely to be especially volatile this October

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The U.S. stock market has been volatile in September. Brace yourself for October.

September has the reputation of being the worst month for the stock market, but October far and away is the most volatile month of the year — as you can see from the accompanying chart. So if this October follows the historical averages, the stock market won’t lose as much as it has so far in September but investors will still feel whipped around.

You might think October’s historical volatility can be traced to the U.S. market crashes that occurred in 1929 and 1987, each of which occurred during that month. But you’d be wrong: October remains at the top of the volatility rankings even if those two years are removed from the sample. Nor is there any trend over time in October’s place in those rankings: If we divide the period since the Dow Jones Industrial Average
DJIA
was created in 1896 into two periods, October is the most volatile in both the first and second halves.

Why would October be the most volatile month? I’m not aware of any plausible theory, and that normally would be a reason not to expect the historical pattern to continue. But not in this case.

That’s because an expectation of volatility can itself lead to greater volatility. So the fact that past Octobers have been so volatile is a reason to expect this coming October to also be a particularly choppy month on Wall Street.

If so, our job is not to get spooked by October’s volatility into going to cash. Of course, you may have other reasons why you might want to reduce your equity exposure. But if you were otherwise wanting to be heavily invested in equities, fasten your seat belt and hold on.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Wall Street analysts expect the S&P 500 to rise 19% over the next 12 months. Here are their 10 favorite stocks.

Plus: Let’s debunk the bears’ top arguments against further stock market gains

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September 30, 2023
Government shutdown looms: Here’s how to help preserve your investment portfolio.

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“ The economic impact of a shutdown and the potential implications on your portfolio depend largely on how long the shutdown lasts. ”

The potential for a U.S. government shutdown can raise alarm for investors and send the phone of a financial adviser like me ringing off the hook. Headlines in front of them, my clients are increasingly asking about potential portfolio implications and how they should respond.

There is certainly a measured response, which includes not overreacting to the headlines and sticking to your long-term investment plan, and I’ll show you how to draw it.

Government shutdown explained

First, it’s important to understand what is happening. During a shutdown, the federal government will suspend all services that are deemed nonessential until a funding agreement is reached. This is much different than a default — which can happen when the government can’t pay its debts or satisfy its obligations. A default can have significant ramifications on U.S. creditworthiness and in turn, the global financial system. You may recall lawmakers’ discussions earlier this year regarding raising the debt ceiling — a solution to avoid defaulting.

A U.S. default has never happened, but shutdowns have occurred more than 20 times since 1976. Unlike a default, a shutdown does not affect the government’s ability to pay its obligations, and many critical government services, like Social Security may continue. When weighing the two, one can presume that markets may react more negatively to a default.

Markets may experience heightened volatility in response to the shutdown uncertainty, but markets do not react consistently to the news. In the past we have seen U.S. stocks — as measured by the S&P 500
SPX
— finish positively after more than half of these shutdowns. Results are similar for fixed-income securities, as we’ve seen an even split between positive and negative returns in the bond markets in shutdowns since 1976.

Of course, all investing is subject to risk, past performance is not a guarantee for future returns, and the performance of an index is not an exact representation of any particular investment.

The economic impact of a shutdown — and the potential implications on your portfolio — depend largely on how long the shutdown lasts. The longer the shutdown, the more Americans experience dampened economic activity from things like loss of furloughed federal workers’ contribution to GDP, the delay in federal spending on goods and services, and the reduction in aggregate demand (which lowers private-sector activity).

Read: Government shutdown: Analysts warn of ‘perhaps a long one lasting into the winter’

A measured response

A government shutdown is just one of many factors, both positive and negative, that can cause fluctuation in the market, so it’s important to treat it just as you would other fluctuations.

With so many variables, it’s impossible to precisely predict the effects the shutdown will have or determine how long it will last. This can seem scary for many, so it’s important to remember your long-term financial plan and focus on the factors you can control.

First, do not try to time the market. Doing so based on short-term events is never a good idea, and volatility is unpredictable. Even if the markets fall, we don’t know when they might recover. If you make an emotionally charged decision, you run the risk of missing out on potentially substantial market gains.

Instead, focus on the following: align your asset allocation with your risk tolerance; control your costs; adopt realistic expectations; hold a broadly diversified portfolio and stay disciplined. Doing so can help you weather any form of market uncertainty, including a shutdown.

Stick to healthy financial habits

In addition to not making any sudden moves in your investment portfolio, now is a suitable time to make sure you are keeping up with healthy financial habits, especially if you are a federal employee facing a furlough. This can look like readjusting your budget based on your current needs, keeping high-interest debt to a minimum, paying the minimum on all debt to keep your credit score in good standing and continuing to save.

Remember, using your emergency fund to navigate tight times is exactly what you have saved for and tapping it in this instance is considered a healthy financial habit. Just be sure to replenish it when you have the funds to do so. As a good practice, Vanguard recommends having three- to six months of expenses saved in readily accessible investments.

With a level, long-term approach and a personalized financial plan, you can be prepared for this potential storm and the inevitable ones to come.

Lauren Wybar is a senior financial adviser with Vanguard Personal Advisor.

More: Bill Ackman says Treasury yields are going higher in a hurry, and that investors should shun U.S. government debt

Plus: Social Security checks will still come if there’s a shutdown. But there are other immediate threats to America’s benefits.

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September 30, 2023
Dow falls 160 points Friday, S&P 500 posts worst monthly drop since December

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Stocks closed mostly lower on Friday, with the S&P 500 cementing its biggest drop in a month since December, as a surge in bond yields knocked the wind out of this year’s rally in equities. The Dow Jones Industrial Average
DJIA,
-0.47%
fell about 157 points, or 0.5%, ending near 33,508, according to preliminary FactSet data. The S&P 500 index
SPX,
-0.27%
shed 0.3% and the Nasdaq Composite index
COMP,
+0.14%
gained 0.1%. September was the worst month for the Dow since February, with its 3.5% loss, while the S&P 500 shed 4.9% and the Nasdaq lost 5.8%, marking their worst months since December 2022, according to Dow Jones Market Data. Yearly core inflation edged higher in August, according to Friday’s release of the latest PCE price index. The focus over the weekend will likely be a U.S. government shutdown. Given the negative backdrop for markets, the S&P 500, Dow and Nasdaq all booked declines in the third quarter.

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September 29, 2023
Blue Apron notches triple-digit percentage gain while Nike rallies after earnings beat and boosts Foot Locker stock

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Here are the day’s biggest movers:

Stock gainers:

Blue Apron Holding Inc.’s stock
APRN,
+133.52%
rocketed by 134% after food-delivery start-up Wonder said it would acquire the company for $13 a share or about $103 million, just a fraction of its $2 billion in 2017 when the company went public.

Shares of Nike
NKE,
+5.96%
rallied 7% as the apparel maker, which is also part of the Dow Jones Industrial Average
DJIA,
reported better-than-expected earnings, news that also lifted shares of European rivals including Adidas
ADS,
+6.22%.

Foot Locker
FL,
+2.71%,
which sells athletic apparel, saw its stock rise by 3%.

Walgreens Boots Alliance Inc.‘s stock
WBA,
+6.39%
rose 6.2% as a top gainer among the Nasdaq 100
NDX
as stocks reacted with gains to the latest inflation data.

Stock decliners:

Bionomics
BNOX,
-11.87%,
whose shares jumped 242% on Thursday after reporting positive results from a mid-stage trial of a treatment for post-traumatic stress disorder, fell 8% in regular trade.

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September 29, 2023
Betting markets now see a Trump 2024 win as likelier than a Biden victory — and give Newsom better chances than Trump’s GOP rivals

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Donald Trump’s chances of winning the 2024 presidential election appear to be improving this week, as betting markets tracked by RealClearPolitics put them just ahead of President Joe Biden’s for the first time this year — at 32%, compared with 30%.

That’s illustrated in the below chart, which also shows Democratic Gov. Gavin Newsom of California with an 8% chance of getting elected president, even though he has ruled out a White House run repeatedly. Newsom’s chances are ahead of those for Trump’s rivals for the Republican nomination, such as Florida Gov. Ron DeSantis and former U.N. Ambassador Nikki Haley.

To be sure, betting markets got last year’s midterm elections wrong and can be poor predictors for several reasons. The clientele for political gambling tends to be right-leaning and male, and betting markets can get caught up in narratives as well as skewed by unreliable polls, one expert in political gambling and prediction markets told MarketWatch last year.

Trump’s chances of winning the 2024 presidential election have hit a new high for the year, as Biden seems to fade a bit, DeSantis has seen a big drop, and some bettors like Michelle Obama.

RealClearPolitics

Trump’s improved chances come as he skipped a GOP primary debate for a second time, instead giving a speech Wednesday night directed at Michigan auto workers in which he suggested that none of the debaters deserved to become his vice president.

The former president has 56.6% support in national primary polls, according to a RealClearPolitics moving average of surveys. He has been indicted this year in two separate election-interference cases, a hush-money case and a classified-documents case, but many Republican voters have rallied around him.

DeSantis is a distant second in those polls with 14.4% support, followed by Haley at 5.8%, entrepreneur Vivek Ramaswamy at 5.1% and former Trump VP Mike Pence at 4.2%. In aggregate, the non-Trump GOP candidates get 35.9% support in RCP’s average of national polls, compared with Trump’s 56.6%. In RCP’s average of surveys for Iowa, which holds the first major contest in the GOP primary, they get 46.4% support vs. his 49.2%.

Now read: DeSantis says at debate that Trump’s spending ‘set the stage for the inflation that we have now’

See also: Gas tax a target at Republican debate. Here’s what you’re paying now.

Plus: Instagram, other social media should be banned for anyone 16 and under, Ramaswamy says at GOP debate

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September 28, 2023
Here’s how the Republican presidential candidates say they’ll whip inflation
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Inflation remains a top concern among Americans, so what do the Republicans seeking President Joe Biden’s job say they’ll do about it?

MarketWatch asked the 2024 GOP White House hopefuls to give at least three ways that they would address the elevated prices that have blown up many household budgets.
Most campaigns provided responses, while some didn’t but have offered proposals in other venues. See what they’re all planning below.

The economy is the No. 1 issue for Republican voters, according to a recent Wall Street Journal poll, which found 36% citing the economy generally and an additional 10% citing inflation.

MarketWatch contacted the eight contenders who took part in their primary’s first debate, along with former President Donald Trump, who skipped the debate, and two relatively well-known contenders who failed to qualify for the first debate, Larry Elder and former Congressman Will Hurd. They are listed below in order of their ranking in the latest polls, based on a RealClearPolitics moving average.

Inflation was low when Trump became president, with prices rising less than 2% a year. That was even considered a problem before the COVID-19 pandemic, with inflation often characterized as stubbornly or persistently low. Inflation began to spike in 2021, shortly after Biden took office, due to a global shortage of goods and a huge rebound in consumer demand following the pandemic’s early stages. Economists say massive stimulus by both the Trump and Biden administrations as well as low interest rates fostered by the Federal Reserve helped to push inflation to a 40-year high.

Biden has stressed that inflation, as measured by the consumer-price index, has “fallen by around two-thirds,” and he and his team have talked up their efforts to lower costs for prescription drugs and insulin, to crack down on junk fees for a range of services, and to use the Strategic Petroleum Reserve to lower gasoline prices. Biden’s re-election campaign didn’t respond to MarketWatch’s request for comment.

Donald Trump

“I would get inflation down,” Trump said in a recent interview with NBC’s “Meet the Press,” while saying that “we did a great job with inflation.” His campaign pointed MarketWatch to a number of policy proposals in which Trump himself is quoted.

Former President Donald Trump walks over to speak with reporters before departing from Atlanta’s airport last month.

AP
- The former president says he’ll rein in what he calls Biden’s “wasteful spending,” which Trump says is key to stopping inflation. Trump is proposing to use what’s known as impoundment authority to reduce federal spending. That term refers to the ability of a president to withhold congressionally appropriated funds from their intended use, according to the Committee for a Responsible Federal Budget.
- Trump also calls for boosting energy output. “When I’m back in the White House, I will immediately unleash energy production, slash regulations, like I did just three years ago, and repeal Biden’s tax hikes to get inflation down as fast as possible, and it will go quickly, so that interest rates can get back under control,” Trump says on his campaign website. “I would get inflation down, because drill we must,” he told “Meet the Press.”
- A Trump spokesman did not respond when asked for specifics about which Biden-approved tax increases Trump would repeal. The former president and his advisers, meanwhile, have reportedly discussed deeper cuts to both individual and corporate rates that would build on the 2017 Tax Cuts and Jobs Act.
Ron DeSantis

Florida Gov. Ron DeSantis, says a spokesman, “will reduce inflation by, among other measures, tackling government spending, unleashing domestic energy and removing burdensome Biden administration regulations.”

Florida Gov. Ron DeSantis speaks in July during a press conference in West Columbia, S.C.

AP Photo/Sean Rayford
- In his economic plan, DeSantis leans heavily into energy policy for addressing inflation. “DeSantis will unleash our domestic energy sector, modernize and protect our grid and advance American energy independence. This will not only increase our economic and national security while reducing inflation, [but] it will also help fuel a manufacturing renaissance that will create jobs, revitalize our communities and improve our standard of living,” says his plan.
- He told “CBS Evening News with Norah O’Donnell” that, as president, he would “stop spending so much money. We need a president that’s going to be a force for spending restraint, because that’s one of the root causes, with Congress spending so much.” He criticized both Democrats and Republicans for government spending.
Vivek Ramaswamy

Republican presidential candidate Vivek Ramaswamy speaks in April at an event in Iowa.

AP

“This isn’t complicated,” entrepreneur and author Vivek Ramaswamy said in a recent post on X. “Fight inflation, unleash growth by taking the handcuffs [off] the U.S. energy sector & dismantling the regulatory state.” His campaign didn’t respond to MarketWatch’s request for comment, but his campaign website offers the following proposals:
- “Drill, frack & burn coal : abandon the climate cult & unshackle nuclear energy.”
- “Launch deregulatory ‘Reagan 2.0’ revolution: cut > 75% headcount amongst U.S. regulators.”
- Ramaswamy is also calling for dramatically changing the Federal Reserve, by ending the central bank’s dual mandate of keeping inflation low and maintaining full employment. “Limit the U.S. Fed’s scope: stabilize the dollar
  DXY
  & nothing more,” his campaign site says.
Nikki Haley

A spokesman for Nikki Haley’s campaign pointed to a Fox Business interview on Wednesday in which she called for ending the federal gas tax and cutting spending, as well as to her speech Friday in New Hampshire on her economic plan.

Republican presidential candidate Nikki Haley is a former U.S. ambassador to the United Nations and former South Carolina governor.

Getty Images
- “We want to eliminate the federal gas tax completely,” Haley told Fox Business. “We have to get more money in our taxpayers’ pockets.” That tax helps pay for highways, but she said the system isn’t working, echoing a point that some policy analysts have previously made. Biden pushed for temporarily suspending the federal gas tax in 2022, but Congress didn’t provide sufficient support for his proposal. In her economic speech, Haley also promised to cut income taxes for working families and make permanent the tax cuts that small businesses scored in 2017’s GOP tax overhaul.
- The former U.S. ambassador to the United Nations said members of Congress are “spending like drunken sailors,” as she promised to reduce the federal government’s outlays. “I will veto any spending bill that doesn’t take us back to pre-COVID levels,” she told Fox Business, referring to budgets that date to before the onset of the coronavirus pandemic in March 2020.
- Haley in her speech Friday pledged to support the U.S. energy industry, as she suggested that Washington has been “stifling it.” She said: “We’ll drill so much oil and gas, families will save big on their utility bills.”
Mike Pence

A spokesman for Pence’s campaign pointed to the former vice president’s plan for “ending inflation,” which calls for actions such as reducing the federal government’s spending and changing the Federal Reserve’s job description.

Former Vice President Mike Pence served as governor of Indiana and as a congressman before becoming Donald Trump’s running mate in 2016.

AP
- A Pence administration would “end runaway deficits by freezing non-defense spending, eliminating unnecessary government programs, repealing over $3 trillion in new spending under Biden, and reforming mandatory programs that drive our debt,” the plan says. Earlier this year, he urged “commonsense and compassionate” reforms for programs such as Social Security and Medicaid.
- Pence wants to end the Fed’s dual mandate, which calls for the U.S. central bank to focus on full employment and stable prices. “Trying to serve two, often contradictory goals has led to wild fluctuation in rates,” his plan says, adding that it’s better to “leave employment policy to the president and Congress.”
- The former vice president’s plan said he aims to bring supply chains and production “back home,” and that would happen by “removing regulatory burdens, enacting pro-growth tax policies, and ensuring access to abundant American energy.” In other words: “We will fight inflation by making America the best place to do business again.”
- Similar to his 2024 GOP rivals, Pence blasts Biden’s energy policies, though some of the Democratic incumbent’s stances, such as his approval of the Willow drilling project in Alaska, have also been criticized by environmental groups. Pence’s plan says: “It is time to reverse Biden’s attack on American energy by restarting oil and gas leasing on federal lands, opening the Arctic and offshore regions for exploration
  XOP,
  approving safe transportation of oil and gas, mining rare earth minerals, and rejecting climate change hysteria that is causing U.S. energy
  XLE
  production to fall.”
Chris Christie

Former New Jersey Gov. Chris Christie addresses a New Hampshire audience in April.

AP Photo/Charles Krupa

Chris Christie’s White House campaign didn’t respond to MarketWatch’s requests for comment, but the former New Jersey governor has emphasized that reducing government spending will help tame inflation.

“The out-of-control government spending has created this inflation,” Christie said in June during a CNN town hall. “I mean, even Larry Summers, who I don’t agree with much on, former Democratic Treasury secretary, warned Joe Biden, ‘Don’t do this spending. It’s going to cause the inflation.’ So, first, we need to bring spending down, and we’ve talked about that before.”

Related: Larry Summers has a new inflation warning

Tim Scott

U.S. Sen. Tim Scott pointed to reducing the federal government’s spending and repealing one of Biden’s signature legislative packages, when asked about how he would address inflation.

Tim Scott, a U.S. senator from South Carolina, speaks last month during the presidential debate in Milwaukee.

Getty Images
- Scott, from South Carolina, said in a statement that he would aim to “snap non-defense discretionary spending back to the pre-COVID 2019 baseline.” He described that as stopping Democrats from “turning the temporary pandemic into permanent socialism.”
- Scott said he would rescind the Inflation Reduction Act, which is Democrats’ big economic package aimed at addressing climate change, capping drug costs and raising hundreds of billions of dollars through taxes on corporations. “The Inflation Reduction Act actually increased inflation and the only thing it reduced was money in our pockets,” he said in his statement. “Cutting that off and restoring tax cuts and eliminating the tax increases would go a long way to having the kind of stimulative impact in our economy and controlling spending.”
- Scott called for stronger economic growth. “We have to also grow our economy somewhere near 5% consistently,” he said, adding that could create 10 million jobs. The U.S. economy grew by nearly 6% in 2021 after contracting in 2020 as COVID hit, then it expanded by about 2% in 2022.
Related: Republican presidential candidate Tim Scott says he wants to put the focus on tax cuts

Asa Hutchinson

Former Arkansas Gov. Asa Hutchinson blames “excessive federal spending” for leading to inflation when giving speeches, and outlines a plan for “fiscal responsibility” on his campaign site.

Asa Hutchinson, governor of Arkansas from 2015 until this year, speaks at an Iowa event in April.

Scott Olson/Getty Images
- “Restore discipline by reducing federal government size, cutting spending, balancing the budget, and lowering the deficit to tame inflation,” it states.
- When Hutchinson was governor, he signed a $500 million tax-cut package, saying “it could not come at a better time with the continued challenge of high food and gas prices.” That was in August 2022. On his campaign website, he repeats a call to cut taxes and “reduce regulations to boost the private sector and enhance wages for American workers.”
Hutchinson’s campaign did not respond to a request for comment from MarketWatch.

Doug Burgum

North Dakota Gov. Doug Burgum, a GOP presidential hopeful, speaks at the Iowa State Fair in August.

Brandon Bell/Getty Images

North Dakota Gov. Doug Burgum’s website says that as president he would “get inflation under control, cut taxes, lower gas prices
RB00,
+0.31%,
reduce the cost of living and help people realize their fullest potential.” It doesn’t provide specifics.

A spokesman for Burgum’s White House campaign didn’t respond to MarketWatch’s requests for comment. A spokesman reportedly told the New York Times that the campaign will roll out its vision and plans on its own timeline.

Larry Elder

Larry Elder, a conservative radio host and a gubernatorial candidate in California in the failed 2021 recall of Democratic incumbent Gavin Newsom, said he views energy and tax policy and a constitutional amendment as ways to whip inflation.

Larry Elder is a conservative radio host and former gubernatorial candidate in California.

AP
- “Reverse the war on oil
  CL00,
  +0.93%
  and gas
  NG00,
  -2.65%
  ; permit drilling in Anwar [Arctic National Wildlife Refuge]; authorize the Keystone Pipeline; reverse the Biden restrictions on drilling on federal lands; and encourage nuclear energy
  NLR,
  ” Elder said in a statement.
- “Encourage an amendment to the Constitution to set spending to a fixed percent of the GDP,” he also said.
- Elder said the reduction in spending forced by that constitutional amendment would “coincide with a steep reduction in personal and corporate income taxes,” offering further help to Americans with stretched budgets.
Will Hurd

2024 Republican presidential hopeful Will Hurd, a former Texas congressman, speaks in Iowa in July.

AFP via Getty Images

Former U.S. Rep. Will Hurd of Texas announced his candidacy in June but so far hasn’t made it to the debate stage. In his campaign-launch video, he labeled inflation “still out of control.”
- In a post on X in June, Hurd called for reining in spending. “You cannot be putting government funds into, at a time where you’re seeing the rising inflation,” he said.
- And he said tax hikes are a nonstarter when inflation is high. “The worst time to talk about increasing taxes is when everybody’s hurting from inflation.”
- Hurd also said the deficit should be addressed, to “start bending the curve back on the debt.”
Hurd’s campaign did not respond to a request for comment from MarketWatch.

Now read: Republican presidential debate: Candidates could win with a clear economic message about the ‘crisis among working people’

And see: As Biden joins UAW picket line, poll shows Democrats’ edge over GOP on ‘caring about people like me’ has vanished

Jeffry Bartash contributed.
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September 26, 2023
Why a surging U.S. dollar is about to become a problem for stock-market bulls

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Analysts are ringing alarm bells over a surge by the U.S. dollar, warning it may be set to serve as another “headwind” for U.S. stocks as they struggle through a losing September.

“Since early August, the USD (U.S. dollar) has climbed above its average [second-quarter] level. That means that for corporates, the USD switched back from tailwind to headwind…and an increasing one” as investors close out the third quarter this week, said Andrew Greenebaum of Jefferies, in a Saturday note.

A rapidly strengthening dollar is often seen as a problem for big, U.S. multinationals. A stronger dollar makes their goods more expensive to overseas buyers. And income earned overseas will be less valuable on their income statements.

The U.S. dollar went on a tear in 2022 as Treasury yields surged in response to the Federal Reserve’s aggressive series of interest-rate hikes. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, hit a 20-year high last September, but then retreated sharply.

The pullback, which saw the index drop from a high near 115 last fall to a low below 100 in July, was seen as a tailwind for stocks. The S&P 500
SPX
saw its bear-market bottom in October of last year, and built on its rally through the winter and spring. Since late July, stocks have suffered a pullback, with the large-cap benchmark down around 5.5% from its 2023 high set on July 31.

“After creating a substantial headwind to profits for U.S. multinationals, it’s been a tailwind [year to date]. But that all changed roughly 10 weeks ago,” Greenebaum wrote.

The DXY has ripped higher by around 4% in that short time frame, a move more than one standard deviation outside the norm, he noted. And that sort of move has tended have implications for both company fundamentals and asset allocation.

Jefferies

The chart above breaks out the average performance of key indexes, including the S&P 500, S&P 500 cyclicals, small-caps (RTY), the Nasdaq-100
NDX
and the MSCI All-World excluding U.S.

Small-caps are typically expected to outperform during periods of dollar strength, since most of their revenues come from within the U.S. Cyclical stocks are expected to suffer.

A rising dollar also tightens financial conditions, adding to other headwinds for stocks heading into the fourth quarter, said analysts at Morgan Stanley, in a Monday note (see chart below).

Morgan Stanley Wealth Management

“With the 10-year real rate at a 16-year high above 2.0%, the U.S. dollar is surging, producing meaningful headwinds for U.S. multinationals,” they wrote.

“Oil is becoming a constraint as well, with West Texas Intermediate crude
CL00,
+0.01%
up more than 30% from its spring trough. Together with indications that bank lending and credit availability are already shrinking, these factors suggest the liquidity backdrop may worsen,” they wrote.

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September 25, 2023
U.S. stocks fall for 4th day, capping off worst week for S&P 500, Nasdaq since March

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U.S. stocks capped off a rocky week by finishing lower on Friday after erasing their gains from earlier in the session as the Federal Reserve’s warning that it plans to keep interest rates higher for longer continued to reverberate across global markets. The S&P 500
SPX,
-0.23%
fell 10.17 points, or 0.2%, to finish Friday at 4,319.93, according to preliminary closing data from FactSet. It marked the fourth-straight session in the red, the longest streak of daily losses since early August. Also, the benchmark index fell 2.9% on the week, its biggest such drop since the week ended March 10, when the collapse of Silicon Valley Bank sparked a painful but short-lived selloff. The Nasdaq Composite
COMP,
-0.09%
fell 12.18 points, or 0.1%, to 13,211.81, capping off a weekly loss of 3.6%, also the index’s worst since March 10. The Dow Jones Industrial Average
DJIA,
-0.31%
fell 106.38 points, or 0.3%, to 33,964.44, falling 1.9% on the week, its worst in about a month. The S&P 500 and Nasdaq have now fallen during six of the last eight weeks.

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September 22, 2023
Potential Bids for U.S. Steel Keep Getting Weirder

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September 22, 2023
This former Fed insider has 3 big takeaways from Powell’s press conference

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This former Fed insider has 3 big takeaways from Powell’s press conference

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September 20, 2023
Fed’s revised dot plot for interest rates makes wall of maturing debt a bigger worry

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The Federal Reserve on Wednesday surprised markets with a fortification of its higher-for-longer stance on interest rates, penciling in only half as many rate cuts next year as had been expected.

Fed officials kept the central bank’s policy rate at a 22-year high, but redrew their so-called “dot plot,” a chart of the potential path of short-term rates over time, in a less favorable way for borrowers.

The…

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September 20, 2023
Most long-term investors can ignore whatever the Federal Reserve does today

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The Federal Reserve’s moves — or lack thereof — will affect everyone. And almost no one.

While market pundits have been trying to get their hands on the any indication of what the Federal Open Market Committee’s policy announcement will say on Wednesday, individual investors have stuck their hands in their own pockets and left them there.

The…

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September 20, 2023
Why higher oil prices aren’t likely to make it into Fed’s inflation or rate outlook

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With the Federal Reserve preparing to release updated inflation and interest-rate forecasts on Wednesday, the proverbial elephant in the room will probably be missing from the equation: The full impact of rising oil prices, according to investors, traders and strategists.

Oil prices touched fresh 2023 highs on Tuesday and settled above $90 a barrel, a byproduct of this month’s decision by Russia and Saudi Arabia to extend production cuts into year-end. Just a day ago, Mike Wirth, chief executive of Chevron
CVX,
-0.01%,
put the prospect of oil crossing $100 a barrel on the map and the price at the gas pump went above $6 a gallon in Southern California — reigniting fears about a revival of inflation.

It’s too soon to say whether the run-up in energy prices will spill over into the narrower core inflation gauges that the Fed cares most about, TD Securities strategist Gennadiy Goldberg said via phone. As a result, policy makers may look past the impact of higher energy prices on their longer-term inflation and rate outlook Wednesday, he said. Fed officials are hesitant to place too much weight on energy or food as components of inflation, anyway, because of their volatile natures.

In One Chart: Why crude-oil rally can’t be ignored by investors — or the Fed

However, some traders are worried that such an omission could be a mistake considering all the other price pressures playing out, such as strikes against the three major U.S. automakers.

UAW strike: Union sets Friday deadline for further possible strikes

“Is it a mistake to not factor in oil? I personally think it is, but I’m probably in the minority on that,” said Gang Hu, an inflation trader at New York-based hedge fund WinShore Capital. “The combination of oil and strikes by the United Auto Workers presents a structurally unstable inflation picture.”

“If the Fed is the one that provides insurance against inflation and is not doing anything, the market will seek inflation protection by itself and it will look like inflation expectations are unanchored. This is the risk,” Hu said via phone.

Nervousness around the prospect of a higher-for-longer message on rates from the Fed helped send the 2-
BX:TMUBMUSD02Y
and 10-year Treasury rates
BX:TMUBMUSD10Y
to their highest levels in more than a decade on Tuesday. The ICE U.S. Dollar Index was off by less than 0.1%.

Read: How Fed’s higher-for-longer theme may play out in Treasurys and the dollar on Wednesday

U.S. stock indexes
DXY

SPX

COMP
finished lower on Tuesday, led by a 0.3% drop in Dow industrials.

Investors and traders are expected to zero in on the part of the Fed’s Summary of Economic Projections that reflects where the fed-funds rate target, currently between 5.25%-5.5%, could go in 2024. As of June, policy makers penciled in the likelihood of four 25-basis-point rate cuts next year after factoring in more tightening this year, and they saw inflation creeping down toward 2% in 2024 and 2025, as well as over the longer run.

See: Why Fed’s response to this key question could spark 5% stock-market pullback or ‘solid rally’

Many in financial markets are clinging to the likelihood of no Fed rate hike on Wednesday, and see some possibility of just one more increase in November or December before rate cuts begin in the middle or final half of next year. But inflation traders now foresee seven straight months of 3%-plus readings on the annual headline CPI rate, from September through next March; that’s up from five consecutive months seen as of last Wednesday and complicates the question of where the Fed will go from here.

“The Fed’s rate decision on Wednesday was already decided a while ago, when officials started to communicate that a pause would be the likely outcome,” said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management in Horsham, Pa., which oversaw $32 billion as of August.

“On the margin, we might see higher oil prices make a modest impact on rate projections,” he said via phone. However, “it’s too early for the story to change on disinflation and all the progress made so far.”

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September 19, 2023
S&P 500 slumps to bottom of bullish uptrend channel as investors brace for Fed Chair Powell

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U.S. stocks are up in 2023, but the S&P 500 has fallen to the bottom of its bullish trading channel as the index has slumped so far this month, according to Bespoke Investment Group.

The S&P 500
SPX
was trading down 0.3% on Tuesday afternoon at around 4,441, as traders await the outcome of the Federal Reserve’s two-day policy meeting that concludes on Wednesday.

“It’s currently at the bottom of its uptrend channel and below its 50-day moving average,” said Bespoke, in a note Tuesday that tracked the S&P 500’s trading channel in the chart below.

BESPOKE INVESTMENT GROUP NOTE DATED SEPT. 19, 2023

Meanwhile, the S&P 500 has entered its “weakest 10-day period of the year” historically, according to a BofA Global Research on Tuesday. That stretch, which is the last 10 days of this month, began Sept. 18, the note shows.

So far in September, the S&P 500 has fallen 1.5%, but still had gains of more than 15% year to date on Tuesday afternoon, according to FactSet data, at last check. The index was trading below its 50-day moving of almost 4,484, with the U.S. stock benchmark on track for back-to-back monthly losses after strong performance this year through July.

“We’ve begun to notice more stocks across a few sectors that are either breaking down or failing at key resistance levels,” said Bespoke. The weak patterns are “mostly showing up” in sectors such as consumer staples and healthcare, according to the firm’s note.

“On the bullish side, we’re seeing the most strength in energy and financials, particularly insurance stocks within the financials sector,” Bespoke said.

While the S&P 500 has fallen so far in September, the benchmark’s energy sector has climbed more than 3% this month amid a jump in oil prices, according to FactSet data, at last check.

Higher oil prices
CL00,
+0.22%
helped fuel inflation in August, with the consumer-price index rising 0.6% last month for a year-over-year rate of 3.7%. That was up from 3.2% pace in the year through July.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. Eastern Time on Wednesday, after the central bank’s policy meeting wraps up. Investors will be looking for clues about how long the Fed may keep interest rates at elevated levels in its bid to bring inflation down to its 2% target.

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September 19, 2023
Latest News – MarketWatch

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Kingfisher cuts guidance after profit fall, launches £371.6 million buyback

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September 18, 2023
Block’s stock has been a laggard lately. Will management shakeup provide a needed jolt?

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Block Inc.’s stock has been a sizable laggard this year, and now it’s losing the leader of a critical business — albeit one that hasn’t necessarily lived up to investor expectations lately.

Alyssa Henry, the head of Block’s
SQ,
-2.99%
Square merchant business, is stepping down after a long tenure with the company, and Jack Dorsey will assume her role while continuing to lead Block on the whole, the company announced in a Monday filing.

The announcement comes as Block shares have declined 18% so far this year, while the S&P 500
SPX
has risen 16%. Other payment-technology stocks, including Shift4 Payments Inc.,
FOUR,
-0.54%
Toast Inc.
TOST,
+1.34%
and even PayPal Holdings Inc.
PYPL,
-1.98%
have logged better year-to-date performances.

Block’s stock closed at its lowest level since April 7, 2020 on Monday, according to Dow Jones Market Data. It was down about 2% in after-hours trading.

The stock is also down 82% from its all-time closing high achieved Aug. 5, 2021.

See also: PayPal’s ‘fresh start’ isn’t enough to help its stock, analyst cautions

The performance of the Square merchant business, which includes payment processing and other tools for sellers, has been a sore point for investors recently. Wolfe Research analyst Darrin Peller notes that Block’s second-quarter U.S. gross payment volume (GPV) was up 10% from a year earlier, a four-point spread above Visa Inc.’s
V,
+1.49%
domestic growth. Historically, the spread has been in double digits, he said.

Additionally, while the 12% overall growth in Square’s GPV “continues to imply that Square is a market-share gainer, we note that this growth spread relative to the industry has trended lower and also suggests slightly softer growth trends versus competitors like Clover,” which is part of Fiserv Inc.
FI,
+0.12%,
whose shares are up 20% on the year.

“While some of Square’s success over the years should be attributed to Alyssa’s execution, the company’s more recent performance remains a concern for investors (and we suspect for management, internally),” Peller wrote.

He pointed to “mixed” feedback from investors thus far.

“Bulls argue that this change is positive, indicating that management is taking change seriously,” Peller said. “Further, it’s worth noting that Jack has been more receptive to cost management and other adjustments. Meanwhile, bears are citing that Alyssa was the ‘face’ of Seller and was more receptive to changes in Square’s business model compared to Jack (particularly around outsourced distribution).”

Block, for its part, said in its filing that Henry “provided significant contributions” to the company during a tenure that spanned more than nine years.

UBS downgraded Block shares earlier this month, in part due to concerns about the Square business. Analyst Rayna Kumar said she was concerned about a potential slowdown in gross-profit growth owing to a moderation in consumer spending.

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September 18, 2023
What the ‘mysterious shrinking’ of Wall Street’s fear gauge means for stocks, according to DataTrek

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Wall Street’s so-called fear gauge has been subdued this year, in a “mysterious shrinking” pattern, that’s a bullish signal for equities, according to DataTrek Research.

Declines for the Cboe Volatility Index
VIX
fear gauge come despite continued worries over inflation and elevated interest rates.

“We’ve been saying for several months that a low VIX is a sign that U.S. stocks are in a bull market rather than being excessively delusional about the obvious challenges ahead,” said Nicholas Colas, co-founder of DataTrek, in a note emailed Monday. “We still believe the next few weeks will be choppy, however.”

The gauge, known by its ticker VIX, has dropped more than 35% so far this year and is trading below its long-term average, according to FactSet data. Its trading levels are derived from options contracts tied to the S&P 500, the U.S. stock benchmark that has rallied 16% in 2023 through Monday.

Last week the VIX made “a new post-pandemic crisis low,” finishing below 13 on Sept. 14 in a “rare occurrence” for the index that was a positive sign for stocks over the next three months, Colas’s note shows. That’s even if it suggests near-term “choppiness” will continue, he said.

On Monday the VIX closed at 14, well below its long-run average of around 20. The measure ended Sept. 14 at 12.8.

“At first glance, this makes little sense,” Colas said. “The VIX is supposed to be Wall Street’s ‘Fear Index’ and it would appear “there’s plenty to be fearful of just now.”

‘Cloudy picture’

Colas cited several areas of concern, including uncertainty surrounding inflation, the recent jump in oil prices
CL00,
+1.08%
and “a cloudy picture” of how long the Fed Reserve will keep interest rates elevated, for his rationale as to why investor might feel fearful.

The Fed has been trying to slow the rise in the cost of living in the U.S. via its restrictive monetary policy, lifting its benchmark rate aggressively over the past 18 months.

There also has been the recent climb in Treasury rates that has weighed on stocks lately, with 10-year Treasury yields looking “set on making new decade-plus highs,” said Colas.

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
finished Monday at 4.318%, according to Dow Jones Market Data. That’s around levels seen in late 2007, FactSet data show.

‘Seasonal peaks’ in volatility

The VIX had kicked off 2023 trading below its long-run average, with Colas saying in January that it was looking a lot more like 2021, a year in which stocks rallied, rather than 2022, when equities tanked as the Fed rapidly hiked rates.

See: Wall Street’s ‘fear gauge’ VIX shaping up more like 2021 than 2022, as U.S. stocks rally this year, says DataTrek

Meanwhile, September and October are known for “seasonal peaks in equity market volatility,” according to Colas.

U.S. stocks have slumped so far this month, after falling in August. The S&P 500, which dropped 1.8% last month, is down 1.2% in September through Monday, FactSet data show.

The S&P 500
SPX
closed 0.1% higher on Monday while the Nasdaq Composite
COMP
and Dow Jones Industrial Average
DJIA
each finished about flat, as investors digested fresh data showing a drop in confidence among homebuilders this month amid elevated mortgage rates.

Stock-market investors also have been monitoring the U.S. Treasury market’s inverted yield curve, or when shorter-term yields climb above long-term rates, as that historically has preceded a recession.

There’s also some concern over the increased popularity of zero-day options in the stock market, as “you’d think their growing usage would push anticipated volatility higher, not lower,” Colas said.

“We doubt options desks have just walked away from trading 30-day options” on S&P 500 futures, he said. “If there is money to be made in a financial asset, someone invariably trades it.”

The Cboe Volatility Index measures 30-day expected volatility of the U.S. stock market.

“What the ultra-low VIX is telling us is that none of these concerns matter enough to offset a fundamentally strong picture for U.S. corporate earnings and the belief that the Federal Reserve is largely done hiking rates,” said Colas. “Equities are dismissing the possibility of a recession over the next 1-2 years, no matter what an inverted yield curve has historically said on that point.”

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September 18, 2023
Powell could still hammer U.S. stocks on Wednesday even if the Fed doesn’t hike interest rates

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The past six weeks have left investors with more questions than answers about the outlook for U.S. monetary policy and, by extension, financial markets.

And although the Federal Reserve is expected to leave its policy interest rates on hold Wednesday, Chairman Jerome Powell could still rattle markets as he’s probed for clues about the central bank’s thinking.

Powell’s statement is expected to hew to what he said at the Jackson Hole, Wyoming, symposium in August and before that, during the central bank’s July press conference, but market analysts say the question-and-answer session with reporters and the updated “dot plot” of policy makers projections for interest rates could potentially furnish market-moving news.

See: U.S. economy is trending in the Fed’s direction, so expect Powell to tread carefully next week

“Just because this meeting isn’t widely considered to be ‘in play’ doesn’t mean it is insignificant,” said Steve Sosnick, chief strategist at Interactive Brokers, during a phone interview with MarketWatch.

“The fact is, the Vix is relatively low. That indicates a very sanguine, if not complacent market. And a complacent market can sometimes be more susceptible to a negative shock.”

The Cboe Volatility Index
VIX,
better known as “the Vix” or Wall Street’s “fear gauge,” finished below 14 on Friday, even as the Nasdaq Composite
COMP
and S&P 500
SPX
logged back-to-back weekly losses. Markets have seesawed recently as inflation has reaccelerated while the U.S. labor market and broader economy have slowed.

What will investors be looking for, exactly? Presently, investors expect the Fed could start cutting interest rates again by the middle of next year. Anything that could disabuse them of this notion could undercut U.S. stocks while boosting Treasury yields and the U.S. dollar, analysts said.

Liz Ann Sonders, chief market strategist at Schwab, said clues could potentially surface during the Q&A at the post-meeting press conference, which often has more of an impact on markets than Powell’s statement.

“It is that 45 minutes to an hour that tends to be more market moving,” Sonders said during a phone interview with MarketWatch. “It is what they say about higher for longer and expectations around rate cuts in 2024, and whether Powell pushes back against that.”

Since the beginning of August, more data has emerged to suggest that the U.S. economy might finally be starting to respond to the pressure from the Federal Reserve’s most aggressive campaign of interest-rate hikes since the 1980s. Corporate and personal bankruptcies have climbed.

See: Bankruptcies spiked in August — the post-COVID rebound ‘is becoming a reality’

There have also been indications that the torrid postpandemic labor market might be starting to cool. The Labor Department’s monthly jobs report showed fewer than 200,000 jobs were created in August, while figures from the prior two months were also revised lower, and the unemployment rate ticked higher to 3.8%.

At the same time, consumer-price inflation has accelerated for two months in a row. Some on Wall Street have started to worry about stagflation, and financial markets are now pricing in about even odds that the Fed will leave interest rates on hold.

A report earlier this week showed consumer prices rose 3.7% over the 12 months through August, while the rise for the month was 0.6%, the biggest increase in 14 months.

Adding to the complicated picture, the resumption of student loan payments in October has revived concerns about the consumer despite relatively robust retail-sales data released earlier this week, while an auto worker strike involving all of the “Big Three” U.S. carmakers and the threat of a government shutdown are also sowing fears about a hit to the economy.

“The triple threat from the resumption of student loan payments, a government shutdown and a strike by auto union workers could significantly weigh on GDP growth in Q4,” said EY Chief Economist Gregory Daco in emailed commentary.

Powell could be asked to weigh in on any or all of these. He also could be asked to directly address investors’ expectations for the timing of the Fed’s initial rate cut of the cycle. Expectations for a policy pivot already proved premature last summer, which caused a brief but powerful bear-market rally to fizzle.

A repeat of this could again create problems for stocks, Sosnick said.

“Let’s see if the Fed agrees with the market’s assumptions about rate cuts,” he added.

Traders expect the central bank to keep interest rates on hold Wednesday, with market-based odds seeing a pause as a virtual certainty, according to the CME’s FedWatch tool, which measures expectations based on trading in Fed funds futures. Expectations for another hike later this year are roughly split.

See also: 4 things to watch for at next week’s Fed policy meeting

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September 17, 2023