Last week, Fed Chair Powell said the U.S. would not tame inflation without economic pain. This week heightened recession fears and sent stocks broadly lower.
The Standard & Poor’s 500 lost 4.65%, while the Dow Jones Industrial Average dropped 4.00%. The Nasdaq Composite index fell 5.07% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, declined 3.05%.1,2,3
Yields Surge, Stocks Tumble
Last week’s meeting of the Federal Open Market Committee (FOMC) proved unsettling for the financial markets. It wasn’t only the widely expected announcement of another rate hike but a more hawkish message that rates may be heading higher for longer than anticipated. Fed officials indicated that any policy change might be further off than investors had contemplated.
The latest rate hike caused bond yields to rise, with two-year and ten-year Treasury note yields touching levels not seen in over a decade. Global central banks moved in tandem with the Fed, as the Bank of England, Swiss National Bank, and Norway’s Norges Bank, among others, also hiked rates.4,5
Another Rate Hike
In its effort to cool inflationary forces, the Federal Reserve raised interest rates by 0.75% last week—the third consecutive rate increase of that size. Projections by FOMC members suggested that interest rates may increase by as much as 1.25% before year-end.6 I would say that is the low end of the possible outcomes with 1.5% more likely.
The FOMC also projects that unemployment will rise to 4.4% by December 2023. This projection is up from its current level of 3.7%, and that core inflation will be 4.5% by year-end. In June, Fed officials projected core inflation would be at 4.3% by year-end. They also indicated that interest rates may reach as high as 4.6% in 2023, without any rate cut likely until 2024.7
I think we are close to finally having all of the foreseeable bad interest rate news baked into prices. Why? Because a 4.75% Fed Funds rate should be enough to slow the economy sufficient to cool inflation.
Will there still be negative earnings surprises? Yes.
WIll stock prices go straight up from here? Of course not. Never.
Could international issues really mess things up for us? Yes. The war in Ukraine, unrest in China, far-right government in Italy, or something we don't yet know about are all risks.
But I am getting hopeful that the worst interest-rate induced pain for the stock market may be nearly over.
This Week: Key Economic Data
Tuesday: Durable Goods Orders. Consumer Confidence. New Home Sales.
Thursday: Jobless Claims. Gross Domestic Product (GDP).
Friday: Consumer Sentiment.
Source: Econoday, September 23, 2022
This Week: Companies Reporting Earnings
Wednesday: Cintas Corporation (CTAS), Paychex, Inc. (PAYX).
Thursday: Micron Technology, Inc. (MU), Nike, Inc. (NKE).
Source: Zacks, September 23, 2022
“People are like stained-glass windows. They sparkle and shine when the sun is out, but when the darkness sets in, their true beauty is revealed only if there is a light from within.”
– Dr. Elisabeth Kübler-Ross
Tax-Deductible Educator Expenses
The educator expense deduction allows eligible teachers and administrators to deduct part of the cost of technology, supplies, and training from their taxes. In this case, an “eligible educator” is a taxpayer that is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide. They must work at least 900 hours a year at a school that provides elementary or secondary education.
In 2022, educators can deduct up to $300 of trade or business expenses not reimbursed by their employer, a grant, or another source. Some examples of covered expenses include:
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov8
Choose In-Season Produce This Fall
Eating healthy is essential to keep you and your family feeling good as the days get shorter and the temperature drops. One of the easiest ways to incorporate fresher, riper produce into your meals is to buy in-season items. Generally, in-season produce, harvested at the right time, is full of flavor and nutrition. Plus, sometimes fruits and veggies cost less when they're in season!
Here are some healthy picks that are in-season during the fall:
What are some of your favorite fall produce items?
Tip adapted from the US Department of Agriculture9
Alexandra’s mom had four children. The first one was named May, the second was named June, and the third was named August. What was the fourth child's name?
Last week’s riddle: We all have one, and even though it often demands an answer, it offers no question. What is this everyday item? Answer: A phone.
Sunken Tamblingan Temple, Ubud, Bali, Indonesia.
Footnotes and Sources
2. The Wall Street Journal, September 23, 2022
3. The Wall Street Journal, September 23, 2022
4. The Wall Street Journal, September 22, 2022
5. CNBC, September 22, 2022
6. The Wall Street Journal, September 21, 2022
7. CNBC, September 21, 2022
8. IRS.gov, February 24, 2022
9. SNAP-Ed Connection, U.S. Dept. of Agriculture, June 1, 2022
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Weekly Market Insights: Fallout From Powell Comments Continues
September 26, 2022