U.S. Inflation number for September to be released on October 13 may be seen as an inflection point for stock market investors. If the September inflation numbers don’t show a big fall and remain sticky at around 8%, the markets may take it as a dampener and might fall more. However, if the CPI data shows that Fed has been able to at least control rising prices, the sentiments may turn positive in the market. The September inflation data could give the Fed a new perspective going forward.
Latest Update: US inflation remains high paving way for Fed to hike rates again
Between May and August, US inflation fluctuated as follows: US inflation increased from 8.6% in May to 9.1% in June before dropping to 8.5% in July and then resting at 8.3% in August 2022. Although a reduction in the headline inflation rate is anticipated, the market will be focusing on the core inflation figures.
The US Fed remained aggressive and decided to raise interest rates by 75 basis points for the third time in a row in September as August’s inflation data appeared stubborn and prices not showing a fall.
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Going forward, the Fed officials are predicting an additional 1.25 percentage points of tightening before the year’s end. The Fed dot plot showed FOMC members expecting rates to rise to 4.4% in 2022 and 4.6% next year both exceeding market expectations. It is highly anticipated the Fed will raise rates by 75 basis points for the fourth time in a row in its November 2nd FOMC meeting following it up with a 50 bps rate hike in December.
The US stock market is now more concerned about the impact of rate hikes on the economy and corporate earnings, in particular. It all depends on whether the Fed will be able to end the rate hike with a ‘soft landing’ or a ‘ hard landing’ on the economy. Will there be a widespread recession and if at all it comes, how long will it last, these are some unanswered questions the market stakeholders are facing.
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It is a bear market scenario in the US equity markets. S&P 500 is down by over 22%, Dow 30 – the representative of US-based companies, has fallen close to 20% and the tech-heavy Nasdaq 100 is in a firm grip of the bears, down by over 30%. How the last quarter ends for the US stock market before 2023 arrives is what investors are staring at.