Stock Market Today: Fed Goes Big, Wall Street Approves

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The Federal Reserve is not kidding.

For months, the US central bank has widely telegraphed a 50 basis point hike in its benchmark interest rate for its June policy meeting. But on Wednesday he instead responded to recently boosted expectations spurred by still sizzling inflation numbers, announcing a 75 basis point rise in a range of 1.5% to 1.75% – the biggest rise of its kind. since 1994. Stocks eventually ended higher, with a little help from Fed Chairman Jerome Powell.

“Even two weeks ago we might have thought a 0.75% increase was out of the question, at least in the short term. But with inflation unabated, it has become quite clear that the Fed needs to take a more aggressive approach,” he added. says Mike Loewengart, managing director of investment strategy for E*Trade, who adds that retail investors should expect continued volatility as the market digests the new normal.

The Federal Reserve’s ‘dot chart’ shows that members of the Federal Open Market Committee see the benchmark rate rising to 3.4% by the end of the year and 3.8% by the end of 2023 – with the possibility of rate cuts in 2024.

This is largely in the name of lowering consumer prices. The Fed, which forecast an inflation rate of 2.6% (based on personal consumption expenditure, or the PCE index) in December, now forecasts a rate of 5.2% by the end of the year 2022. And remember: the Fed’s ongoing goal is to get that number back down to 2%.

Interestingly, another unrelated announcement on Thursday — the approval of $1 billion in additional military aid to Ukraine — could help this particular cause, says Sean Bonner, a Wall Street veteran of more than 20 years. and CEO of standalone investment app Guild. Bonner says a ‘timely and favorable outcome’ in Russia’s war on Ukraine will increase global food supply, improve supply chain issues and reduce energy costs, which will benefit consumers Americans.

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“Since it is government spending that has fueled the current inflation cycle, it is paradoxical that such spending can have a direct impact on reducing inflation.”

While stocks initially fell after the Fed’s post-meeting release, they rallied after Powell continued to show flexibility to maintain his aggressive stance at a press conference that followed. “Obviously, today’s 75 basis point increase is unusually large, and I don’t expect moves of this magnitude to be common,” Powell said, adding that an increase rates of 50 or 75 basis points was on the table for the July meeting.

The Nasdaq jumped to a 2.5% gain, ending Wednesday’s trade at 11,099. S&P500 improved by 1.5% to 3,789, while Dow implemented a 1.0% increase to 30,668.

“Today’s announcement confirms the Fed’s commitment to fight inflation more aggressively despite the potential consequences of raising rates at such a rapid pace,” said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management. “Overall, the Fed’s key rates have been out of sync with the path of inflation for some time, and the Fed’s aggressive hikes should calm markets for now.”

Other news on the stock market today:

  • Small cap Russell 2000 set up a 1.4% lead at 1,731.
  • U.S. crude oil futures fell 3% to end at $115.31 a barrel.
  • Gold Futures Contracts rose 0.3% to $1,819.60 an ounce.
  • Bitcoins the troubles continued, with the cryptocurrency falling 2.1% to $21,684.50. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
  • Boeing (BA) was the best stock in the Dow Jones today, up 9.5%. Today’s upside came news that China Southern Airlines carried out a test flight of Boeing’s 737 MAX, suggesting the plane could return to mainland service after fatal crashes in the past few weeks. years have left him largely on the ground. Meanwhile, Susquehanna Financial Group analyst Charles Minervino reiterated a positive (buy) rating on BA stock. “Supply chain challenges continue to be an overhang, and the most recent comment from BA has been that the goal is to achieve stability before looking to raise rates,” the analyst said. “Although production, deliveries and orders have lagged estimates, we continue to have strong belief in BA’s market position, catalytic trajectory and strong normalized earnings capacity.”
  • Snowflake (SNOW) jumped 7.6% after Canaccord Genuity analyst David Hynes Jr. upgraded the cloud-based data platform to Buy from Hold. “From a financial perspective, while the interim targets shared last quarter were reiterated, there were a slew of additional disclosures that give us confidence in the sustainable and profitable growth path that Snowflake is on,” Hynes wrote in a note, saying he sees potential. growth rates of 35-40% over the next few years. He also said he was “confident” that shares of SNOW – a member of Berkshire Hathaway’s equity portfolio – will be higher in coming years. Shares closed at $122.54 today, well below the analyst’s price target of $185.

The end of the bear market? Good …

Alas, the bear market may not have bottomed out, but any further pain could be relatively short-lived.

Sam Stovall, chief investment strategist for independent research firm CFRA, said that despite the possibility of a near-term rally triggered by the Fed’s aggressive monetary policy, his firm sees the S&P 500 bear market touching a trough closer to 3,500 (-7.6% from current levels), during the third quarter of this year. But after that, the sun should break through the clouds:

“Encouragingly, history reminds us that new bull markets (as defined by a 20% price advance from the bear market low) typically started three months after the end of the bear market, implying a 2022 year-end S&P 500 value of around 4,200. Also, based on the average price increase of 40% in the 12 months following bearish lows since World War II, expect what the S&P 500 is trading around the 4,675 level by this time next year.”

As we said yesterday, however, investors should not try to hit the exact bottom. Valuations are quite depressed across a number of sectors, including real estate investment trusts (REITs) – which, in turn, pushed yields up significantly. Right now, the S&P 500 real estate sector is earning 2.5% — well above the S&P 500’s 1.6% — and many individual REITs are earning far more than that.

Here, we take a look at a dozen REITs that look ripe for a rebound over the rest of 2022.

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