The Dow Jones Industrial Average (DJI) dipped roughly 0.3% or 100 points, while the S&P 500 (GSPC) shed 0.2%. The Nasdaq Composite (IXIC), which is heavily weighted in technology, dipped by 0.09%.
Markets have become cautious recently as they evaluate the effects of the Fed’s announcement that it will maintain high borrowing prices in order to combat inflation on consumer and business demand. Jerome Powell, the head of the central bank, did little to raise expectations that the US economy will avoid recession.
In contrast to other central banks, the Bank of Japan maintained its ultra-low interest rates on Friday and remained committed to assisting the economy, indicating that there will be no change to its extensive stimulus programme. Following the judgement, the yen lost value relative to the dollar.
As for specific equities, Activision Blizzard (ATVI) shares increased to get closer to Microsoft’s (MSFT) offer price after the UK antitrust regulator indicated the $69 billion purchase is still possible.
The strikes that have afflicted Hollywood and the car industry were also discussed. The UAW announced that it would intensify its strikes against GM and Stellantis. The main four studios — Warner Bros. Discovery (WBD), Disney (DIS), Netflix (NFLX), and NBCUniversal — also failed to reach an agreement with the striking writers despite protracted negotiations.
The days ahead will offer updates on the ongoing labour strikes, a new reading on the Fed’s favoured inflation gauge, and results from Costco and Nike after the Federal Reserve’s recent view on high rates dragged markets lower this week. What to watch the following week is graphically broken down by Brent Sanchez of Yahoo Finance.
Even if the Fed’s announcement that rates will remain high for longer caused Wall Street to tremble, some experts are pointing to the Fed’s longer-term forecast to find a path that is still “remarkably benign.”
Michael Gapen, an economist at Bank of America, wrote in a note on Friday that the Fed’s “dot plot,” or visualisation of policymakers’ estimates for where interest rates may go in the future, was hawkish. Before the year is over, central bankers predict one more rate increase. And compared to earlier predictions, future rate decreases are now expected to be less drastic. The economic costs of the protracted tightening, however, seem to be decreasing, according to Gapen.
For instance, Fed officials forecast that the unemployment rate will decline to 3.8% this year from their previous estimate of 4.1%. In addition, central bankers expect better economic growth than they did initially, increasing their estimate of this year’s GDP from 1% in June to 2.1%. This implies that monetary tightening and slower-than-expected rate decreases have no negative effects on employment or economy, according to Gapen.
The yield on the benchmark 10-year Treasury hit its highest level in 15 years while the S&P 500 lost more than 2% over the course of two days. Investors sold stocks at their highest rate for the whole week, according to data from Bank of America.
However, Tom Lee, the head of research at Fundstrat, believes that response may have been exaggerated.
After the market closed on Thursday, Lee remarked in a video for clients that “the market had an overly hawkish reaction to the FOMC meeting.”
One of the key elements influencing the market action is something Lee disagrees with. The Federal Reserve’s revised Summary of Economic Projections (SEP), which was released on Wednesday, indicated a preference for one additional rate increase this year.
One of the key elements influencing the market action is something Lee disagrees with. The latest Summary of Economic Projections (SEP) from the Federal Reserve, which was released on Wednesday, indicated a bias towards one more rate increase this year and revealed the Fed now expects interest rates to be higher than first anticipated in both 2024 and 2025.
However, Lee does not view this as a significant issue and believes that the Fed’s forecast for higher rates for a longer length of time makes sense given the Fed’s improved estimate for the Gross Domestic Product (GDP).
During his news conference, Fed Chair Jerome Powell said that economic growth, which the Fed now expects to touch 2.1% this year, up from its 1% increase in June, will be the main driver for Not inflation, just another rate increase.
Powell stated that although inflation has been more persistent over the past year, it hasn’t been evident in the most recent data. “I would think that it has more to do with higher economic activity. So, if I had to ascribe one item, I would say that generally more economic activity means we need to adjust rates more. Again, we’re selecting medians here and attempting to attribute one rationale.
As the economy grows, larger price to earnings ratios may result from the union of higher interest rates and higher GDP, according to Lee. Then, greater stock valuations would probably follow from higher P/E ratios.
As negotiators for the Writers Guild of America and the Hollywood studios prepare to meet for a third day, the most recent round of bargaining negotiations over the Hollywood strike appears to be moving forward.
After the parties’ communication ended for a month, the new conversations, which began on Wednesday, have raised hopes of a deal. In a statement released on Thursday, Los Angeles Mayor Karen Bass expressed that she was “very encouraged” by the conversations. The fact that the CEOs of Disney (DIS), Netflix (NFLX), and Warner Bros. Discovery (WBD) joined the negotiations, as has been widely reported, gives this week’s meeting a sense of urgency and excitement.
Hollywood production has ceased due to the more than 140-day-long strike by writers and actors who crossed the picket line in a separate dispute in July.
Among the grounds of contention characterising the protracted conflict are pay, working conditions, and how employees are incorporated in profit sharing in the streaming era. Another area of contention relates to promises and limitations on the usage of artificial intelligence technologies.
The services sector contraction caused the composite PMI to drop from 50.2 in August to 50.1, a 7-month low. The manufacturing indicator, meanwhile, went from 48.5 in September to 49.7 in October. For these indices, any number above 50 denotes sector expansion, while readings below 50 denote sector decline.
S&P Global Market Intelligence Siân Jones stated that the PMI data for September “added to concerns regarding the trajectory of demand conditions in the US economy following interest rate hikes and elevated inflation.” “Although the overall Output Index stayed over the 50.0 threshold, it did so only marginally, and for the second consecutive month, a widespread standstill in total activity was indicated. The slowdown in new orders caused the service sector to lose more momentum.