A step closer to ending the interest rate hiking cycle?
Next US Fed interest rate decision - 19:00 GMT Wednesday, February 1st, 2023
Skilling Fed Preview
A step closer to the end of the hiking cycle
- The US Fed has not made it a secret that they plan for a 5% to 5.25% terminal rate range
- The US Fed is expected to hike 0.25% on Wednesday which would take the rate to 4.75%
- Provided the Fed delivers the anticipated +0.25% hike, this would place the Fed just one or two 0.25% hikes closer to its 5% to 5.25% terminal rate range
US Macro Developments since the December FOMC meeting
US payrolls continue to remain strong, unemployment remains near historical all-time lows
December US average hourly earnings moved higher vs November
US inflation (consumer price index) indicates deceleration month on month
Are your trades positioned for the next interest rate cycle?
US consumer sentiment is now at the highest since April 2022 and top consumer cyclical sector stocks such as Amazon.com, Inc, Tesla, Inc. The Home Depot, Inc. and Alibaba Group Holding Limited could be in the focus of investors and traders as the Consumer Cyclical sector posts strong gains over the previous 30 days.
US Stock Market Sector Summary
Cyclical sectors sensitive to cycle changes
| Sector | 1 Week | 1 Month | 3 Month | YTD | 1 Year | 3 Year |
|---|---|---|---|---|---|---|
| Consumer Cyclical | 6.41% | 16.15% | 2.40% | 14.50% | -14.42% | 6.95% |
| Financials | 2.55% | 6.81% | 9.35% | 5.99% | -3.19% | 8.92% |
| Materials | 0.75% | 6.12% | 13.43% | 7.36% | 3.10% | 14.97% |
| Real Estate | 2.88% | 8.91% | 13.46% | 9.26% | -7.74% | 3.82% |
Sectors highly sensitive to interest rate moves
| Sector | 1 Week | 1 Month | 3 Month | YTD | 1 Year | 3 Year |
|---|---|---|---|---|---|---|
| Comm. Services | 4.12% | 16.72% | 15.91% | 15.21% | -20.60% | 1.14% |
| Energy | 0.83% | 3.68% | 3.63% | 4.30% | 44.19% | 24.55% |
| Industrials | 2.17% | 2.48% | 9.90% | 2.98% | 3.91% | 9.10% |
| Technology | 4.08% | 10.76% | 10.40% | 9.85% | -8.81% | 13.98% |
Defensive sectors when investors seek to avoid risky sectors
| Sector | 1 Week | 1 Month | 3 Month | YTD | 1 Year | 3 Year |
|---|---|---|---|---|---|---|
| Consumer Defensive | 0.33% | -3.55% | 2.49% | -2.27% | -0.09% | 7.52% |
| Health Care | -0.78% | -2.13% | 2.07% | -2.20% | 5.51% | 11.07% |
| Utilities | -0.49% | -3.45% | 5.86% | -2.28% | 5.64% | 3.59% |
Bottom line: The US FED seems to have done its job effectively during 2022, and the recent strong stock market performance could be a signal that investors believe that peak inflation has already passed. Provided that inflation continues to decelerate, then it is less likely that the US Fed will have to keep on hiking interest rates any further than the 5% to 5.5% range they have indicated.
Now that a lot of the economic uncertainty which resulted in the previous year's “inflation shock” seems to be behind us, the theme moving ahead could be price stability. If this is true, investors and traders would then need to adjust their market approach to the new realities of a more “normalized” financial market, at least for now.
Happy trading all.
Not investment advice. Past performance does not guarantee or predict future performance.
Related Articles
Trading Idea: Sometimes market direction is hard to forecast
Traders should not expect to discover good trades everyday. A comprehensive analysis on today market trends and news tha...
Trading Idea: Jerome Powell has warned the markets, did you hear his message?
Fed Chairman said that “A pathway to a soft landing still exists”. A comprehensive analysis on today market trends and n...
Market Talk: Brace for spike in volatility, it’s Fed rate day
It’s Fed rate day. A comprehensive analysis on today market trends and news that helps traders to gain valuable knowledg...