Stocks Fundamental Forecast: Neutral
- Dow Jones[1], S&P 500[2] and Nasdaq[3] 100 futures wrap up a strong week
- Inflation data has traders eyeing the Fed and its balance sheet next
- Quadruple Witching Day is Friday, Dow retail positioning bets eyed
This past week, futures tracking the Dow Jones, S&P 500 and Nasdaq 100 closed +3.74%, 3.55% and 3.72% respectively. This meant the best weekly performance since earlier this year, reversing losses accumulated since late November as Omicron Covid-19 variant woes faded. An in-line CPI report, which showed inflation around a 40-year high[4], did little to further boost hawkish Federal Reserve policy bets.
With the inflation report now behind us, equities are turning their attention towards the last Federal Reserve monetary policy announcement of the year. Policymakers are not expected to change the Federal Funds Rate, but that’s not what traders will be tuning in for. With general price growth around a 40-year high, expectations have been rising that the central bank could speed up tapering asset purchases.
In fact earlier this month, Chair Jerome Powell noted about how they will retire the term ‘transitory’[5] from explaining inflation. A strong labor market, with jobless claims at a 1969 low[6], and rising economic growth projections, via the Atlanta Fed GDPNow[7], bodes well. However, recent episodes of a slowing balance sheet have been associated with near-term pullbacks in the stock market – see below.
Still, the central bank will likely continue to hold a cautious view, especially amid the Omicron Covid-19 variant. As 2022 wraps up, investors will likely continue positioning themselves for the road ahead. A more hawkish Fed is becoming an increasing reality. All else being equal, the Fed raising benchmark
