The U.S. stock market may experience some volatility today, as traders wait for important news from the Federal Reserve.
Specifically, the Federal Open Market Committee (FOMC) will wrap up its regularly scheduled two-day meeting this afternoon with a much anticipated interest-rate decision. Most investors expect that another 75-basis point hike in the benchmark short term interest rate will be approved at this time. Of note, the recent economic reports still show that inflation remains problematic, and that the economy is probably strong enough to withstand additional rate hikes without slipping into a prolonged recession.
Meanwhile, investors will also be paying close attention to the commentary offered by the Fed’s Chairman, Jerome Powell. At this point, many traders are probably hoping to hear that the central bank might relax its posture in the months ahead. It should be noted that it can take some time for the economy to fully react to monetary policy (interest rate) changes, and one of the Fed’s difficult jobs is to anticipate when future economic cooling and easing of inflation may begin to occur. In the ideal situation, the Fed would begin to ease on its monetary policy before such economic effects are actually visible in the statistics.
The equity futures market was down slightly this morning as traders await the big Fed announcement this afternoon. After that, statistics on the employment situation will also take the spotlight this week. On Friday morning, the government will release the October employment report. Most analysts expect that the labor market weakened somewhat, with roughly 205,000 jobs added to the economy, compared to 263,000 in September. In addition, investors will be closely watching to see if wage pressures are abating. Of note, elevated wages and rising costs for materials, have contributed to inflation in many areas of the U.S. economy. This situation intensified during the coronavirus pandemic, and has been a persistent challenge.
In corporate news, the third-quarter earnings season remains a work in progress. This week, we will get a closer look at reports from a number of companies operating across many different industries. Yesterday afternoon, Advanced Micro Devices (AMD) released better-than-expected results, and that stock is moving higher in pre-market trading. Today, we will receive news from Qualcomm (QCOM), a leading manufacturer of wireless telecommunication products. Tomorrow, we will hear from Marriott International (MAR), which is a business that should benefit from the recovery taking place in the travel sector.
From a technical perspective, the stock market has displayed some strength over the past couple of weeks, with the S&P 500 Index finally crossing back above its 50-day moving average (located at the 3,830 mark). Although this development is encouraging, the market seems to be undergoing a shift in leadership. Specifically, the energy and financial issues have been displaying strength lately, while the larger technology stocks have not been performing as well. Given the key role that the technology sector has played in past bull markets, we may not be willing to declare the return of the bull until the tech stocks exhibit a recovery.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
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