Federal Reserve’s rate hike this week may set the tone for investors in US stock market | The Financial Express

Federal Reserve’s rate hike this week may set the tone for investors in US stock market

While inflation and rate hikes may continue to influence market pricing, corporate earnings may rise to the top of many investors’ priority lists.

Federal Reserve’s rate hike this week may set the tone for investors in US stock market
If inflation remains erratic and does not fall significantly month on month, rate hikes may last longer than expected.

For US stock market investors, 2022 has been a year of rising inflation and interest rates. The stock market’s high valuation of equities during the low-interest rate era vanished in a rising interest rate scenario. US stocks fell steadily throughout the year, entered a bear market, and only slightly recovered before the end of 2022.

As valuations in some stocks and sectors remain high, 2023 may not be much different from what we saw in 2022. While inflation and rate hikes may continue to influence market pricing, corporate earnings may rise to the top of many investors’ priority lists.

As a result, the FOMC meeting on December 13-14 will be a significant market milestone. The Fed is expected to raise rates by 50 basis points, which the markets have already priced in. What Fed Chairman Powell says in the post-conference commentary will be important for investors to know.

Also Read: Is the Santa Claus rally in US stocks cancelled this year?

Before the US Fed rate hike decesion on December 14, the November US CPI date will be announced on December 13. In the United States, inflation fell from 8.2% in September to 7.7% in October and is expected to fall further in November. However, the core inflation numbers will be more important than the headline figures.

Further, Fed rate hikes may not be working as desired for the employment sector. More jobs were added in November than was anticipated, according to the recent employment data, which points to strong demand. Meanwhile, persistent wage growth might indicate resilient inflation.

Also Read: Strong dollar hits S&P 500 companies foreign profits

Furthermore, if inflation remains erratic and does not fall significantly month on month, rate hikes may last longer than expected. Furthermore, Powell had already stated earlier that the central bank would have to keep raising rates until inflation is brought within the 2% target range, which means the final federal funds rate may even cross 5%.

A higher terminal rate may have a negative impact on the economy and markets. The earnings for the first two-quarters of the S&P 500 will be closely watched by the market in order to determine the next move in 2023.

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First published on: 10-12-2022 at 06:06 IST