Happy Friday team. I’m Phil Rosen, reporting from New York. The Federal Reserve’s Wednesday rate hike was just the beginning of the world’s fight against inflation. A smattering of other central banks have followed suit, while some others took a different course.
All these policy maneuvers, too, make for an increasingly uncertain market — unless you’re an analyst at one top Wall Street firm that says, pretty soon, it might be prime time to buy into stocks for a rally.
Let’s break it down.
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REUTERS/Brendan McDermid
1. The stock market is in a bottoming process, and that could mean indexes rally in early 2023 as the Fed readies a pivot, according to Stifel.
The investment firm forecasted that the S&P 500 will surge 17% by the first quarter of next year, as a Fed pause gives markets a boost after a persistent sell-off. Such a move by the central bank would be data-dependent, though, and Powell and co. would need to see real signs that their efforts are paying off.
A persistent decline in inflation figures should be what they’re looking for to show that it’s time to pause rate hikes, the Stifel analysts noted.
Stifel still anticipates a recession in the third quarter of next year — but that’s not until after stocks make considerable gains.
For now, pain fueled by central banks is likely to continue. The Fed’s 75 basis-point rate hike on Wednesday was the first of many such moves this week as the policymakers globally confront surging prices.
Yesterday — which ING dubbed “Super Thursday” — nine other central banks adjusted key rates.
The Bank of Japan, for example, kept its benchmark rate steady while stepping in to stabilize the volatile yen in other ways, but others like the Bank of England, Indonesia, and Norway all made 50-basis-point hikes.
Meanwhile, Switzerland upped the ante with a 75-basis-point raise, to bring its benchmark rate out of negative territory, while South Africa also hiked.
Turkey, however, slashed its benchmark rate in a surprise move, given that domestic inflation in August clocked in above 80%. The lira fell to a record low against the dollar.
Returning to the US — the economy won’t be able to handle the Fed’s rate hikes, according to top JPMorgan Asset Management strategist David Kelly.
In his view, which Mohamed El-Erian has echoed, the US is going to pay the price for policymakers’ late response to climbing inflation.
“This economy has one foot in the grave,” Kelly told CNBC Wednesday. “It really looks like it could get pushed into recession, and I just don’t see the reason why. If inflation is coming down slowly, let it come down slowly.”
What comes next for the global economy, and what are the odds that central banks can stem global inflation? Email [email protected] or tweet @philrosenn.
In other news:
Russian President Vladimir Putin in Veliky Novgorod, Russia, on September 21, 2022.
Gavriil Grigorov, Sputnik, Kremlin Pool Photo via AP
2. US stocks tumbled early Friday as major indexes remain on track for a losing week. Dow futures shed 300 points in premarket trading, with investors staying cautious after Wednesday’s hike. Meanwhile, the British pound dropped 1.6% to fall below $1.11 after the House of Commons unveiled a new economic plan. Here’s your market briefing.
3. On the docket: Carnival Corp, Smiths PLC, and Medmen Enterprises, all reporting.
4. Three investing experts explained how to adjust your portfolio to benefit from the Fed’s rate hike and rising inflation. You can put your cash to work and get high yields that haven’t been seen since 2005, according to one market pro: “Don’t just buy the dip.”
5. China shifted US bond holdings offshore as the Cayman Islands saw a $38.5 billion rise in China’s US Treasury holdings. Bermuda saw a $7 billion increase, and it could signal that China is protecting dollar-denominated assets from any future sanctions like the type that froze Russia’s foreign currencies.
6. President Vladimir Putin’s self-sanctioning of Russian energy supplies will be absorbed by Europe, but Moscow will never be able to replace those lost customers. That’s according to Kremlin critic Bill Browder: “Putin is an extremely vindictive man…this is the action of a man who is desperate.”
7. Bitcoin could return to $68,000 within four years, and hit $500,000 in the next decade, famed crypto-bull Michael Saylor said. The MicroStrategy founder, who has effectively made the company’s stock a leveraged bet on bitcoin, added that the next logical step for bitcoin is to replace gold as a “non-sovereign store of value asset.” His comments come as the world’s biggest crypto is down more than 60% year-to-date.
8. A 35-year market veteran shared how he perfected a strategy to hedge against higher interest rates. Top 1% fund manager Harley Bassman shared how he constructed his winning portfolio and his outlook for rates — and the lessons worth taking from a firm that’s dominated 2022.
9. Look to these stocks to buy right now as earnings are on the decline and the higher interest rates jolt the economy. Tavis McCourt of Raymond James explained how to adjust your investment strategy as the market landscape changes and grows more uncertain. See the list here.
Markets Insider
10. Lumber prices dropped Thursday after mortgage rates solidified their move above 6%. Hawkish Fed rate hikes have weighed on the key commodity, and one firm told Insider the sector remains in a “state of overall malaise.” Get the details here.
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Curated by Phil Rosen in New York. (Feedback or tips? Email [email protected] or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.