The S&P 500 ended the day at around 4,450 points. Brent oil made some gains but then dropped after briefly reaching $95 per barrel on Monday, causing worries about inflation. Apple Inc. saw an increase in stock value, while Tesla Inc. saw a decrease after Goldman Sachs Group Inc. lowered their earnings predictions for the electric car company. The yield on 10-year Treasury notes slightly decreased, while the yield on two-year notes stayed above 5%.
Beginning with the Federal Reserve on Wednesday and concluding with the Bank of Japan two days later, important meetings will take place among half of the Group of 20 member countries to determine monetary policy. The central banks of advanced economies may receive extra attention as international policymakers adjust to the concept put forth by US officials at the Jackson Hole conference in August, which suggests that interest rates will probably remain elevated for a more extended period of time.
Traders will be closely monitoring the dot plot summary of economic forecasts as the Federal Reserve is anticipated to maintain interest rates this week. The main concerns are whether policymakers will keep their predictions of a 25 basis-point increase by the end of the year and how much easing they are expecting for 2024. In the previous projection made in June, they anticipated a reduction of 1 percentage point.
Megan Horneman, the chief investment officer at Verdence Capital Advisors, predicts that the Federal Reserve will temporarily halt its interest rate hikes this week, adopting a more cautious approach. However, Horneman believes that the futures market will still adjust and increase the likelihood of another rate hike before the end of the year. Horneman expresses concern that inflation could easily increase again, especially if energy prices start affecting general prices. Consequently, she suggests that the Federal Reserve may need to imply that they are not finished raising rates.
David Kelly, the chief global strategist at J.P. Morgan Asset Management, predicts that the Federal Reserve will maintain a firm stance, implying potential interest rate hikes until 2023. However, Kelly also acknowledges the possibility of a slower and more gradual approach to easing over the next few years. Despite these plans, there is a concern that if an economic downturn occurs, the Fed may need to implement a more aggressive and speedy easing strategy.
Kelly suggests that it is wise to have a well-rounded investment portfolio, with a more cautious approach to stocks and a longer-term perspective on fixed income. This is due to the increasing possibility of an economic downturn as the process of monetary tightening continues.
According to Lisa Shalett, an expert at Morgan Stanley Wealth Management, despite some investors remaining optimistic about the progress made in headline inflation, an important measure closely monitored by Fed Chair Jerome Powell indicates a prolonged period of higher interest rates.
The speaker mentioned that the US stock markets are confidently anticipating a successful situation where interest rates reach their highest point, and both the economy and corporate earnings growth pick up speed again. However, she expresses doubts about the argument that growth will accelerate and profit margins will expand, which is the positive outlook. She believes that the most likely scenario is that US equities will remain within a certain range in the next six to nine months, with the continuous fluctuation between earnings and market multiples resulting in only slight changes.
Paul Nolte from Murphy & Sylvest Wealth Management is observing that the current two months, which are known to be the least strong, are meeting his expectations and conforming to the usual trend.
Nolte stated that the playbook suggests that there will be more decline until the middle or end of October, followed by a rally towards the end of the year. This rally is based on the expectation that earnings will increase during this quarter. Generally, when earnings rise, stock prices tend to go up as well. However, many stocks in the market are already highly valued compared to historical standards, so there might not be much room for further growth.
