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What yesterday’s rate hike means for your portfolio


Well friends, we have it.

Yesterday, the Federal Reserve provided a clear outlook for the rest of the year.

Yesterday afternoon, Federal Reserve Chairman Jerome Powell made his remarks following the September meeting of the Federal Reserve’s Open Market Committee (FOMC).

As expected, Fed officials voted unanimously to raise key rates by 75 basis points for the third consecutive time.

What was surprising was that the Fed expects key interest rates to reach 4.25% by the end of the year, implying two more significant rate hikes. We will likely see a 0.75% rate hike at the November meeting and a 0.50% hike at the December meeting.

Although most had expected the 75 point hike, the Fed’s hawkish tone shocked the markets.

As a result, the S&P 500 closed down 1.7%, while the Dow Industrial Average and the Nasdaq closed down 1.7% and 1.8% respectively.

All 11 sectors of the S&P 500 fell and the small-cap Russell 2000 fell 1.2%.

As I write this morning, markets are trading slightly lower but are mostly stable.

So, now that we have a clear idea of ​​what the Fed will do, what does this mean for markets as we head into the final quarter of 2022?

in today Market 360I’m going to share what the Fed’s recent statement means for us and how we can prepare for what’s to come.

High inflation means higher rates

As we discussed last week, the latest inflation data has dashed any hopes that the Federal Reserve will back off from its aggressive key rate hikes this week. The 75 basis point increase was expected.

You may recall that the consumer price index for August (CPI) rose 0.1% month over month, missing economists’ expectations for a 0.1% decline. The CPI shocked Wall Street, with energy prices falling 5% in August, gasoline prices falling 10.6%. Food prices, on the other hand, rose 0.8% last month. Excluding food and energy, core CPI rose 0.6% in August, meaning inflation is now priced into many service costs.

Over the past 12 months, the CPI jumped 8.3% through August, down slightly from July’s 8.5%. Core CPI rose 6.3% over the past 12 months, up from the annual pace of 5.9% in June and July. In other words, the core CPI rose for the first time since March.

Ahead of an August CPI tumble, the hotter than expected CPI report spooked Treasury yields, drowning hopes the Fed won’t raise rates too much this week. The 10-year Treasury yield even crossed the 3.5% mark, while the two-year Treasury yield almost crossed the 4% mark this week.

Why is this important?

The fact is that the Fed needs to catch up to market rates. And that’s exactly what they plan to do…

In the wake of the Fed’s rate hike yesterday, Treasury yields soared, with the two-year Treasury yield rising above 4% and the 10-year Treasury yield hitting nearly 3.6%. Treasury yields moderated this morning.

Powell said: “A failure to restore price stability would result in greater pain later.”

Although Powell didn’t make the dovish comments I was hoping for, he was very clear about what the Fed plans to do. And that in itself is good news, folks.

Third quarter results and beyond…

Ultimately, things have started to calm down and we have a clearer picture of where the Fed is heading.

Fortunately, at Growth investor, we have taken steps to align our shopping list to thrive in the current environment, as we have loaded on companies with accelerating profit and sales momentum. We recovered crude oil and natural gas inventories, as well as other commodity and shipping-related inventories.

I still expect crude oil prices to remain firm in the near term and other commodity-related stocks will also be an oasis for investors as they should post positive earnings as the S&P 500 flounders.

Case in point: FactSet recently reported that the energy sector is expected to average 8.3% earnings growth in the third quarter, even though oil prices have fallen 20% so far in the quarter. The fact is that many energy companies remain profitable even though the price of oil is $80 a barrel.

So I still expect energy companies to produce the best earnings for at least the next two quarters.

It will be “every action for itself” in the upcoming third-quarter earnings season, and I’m proud that my Growth investor stocks will show positive sales and earnings growth.

I know it can be disconcerting to see stocks fall…but now is not the time to exit the market and sell your positions. All you have to do is shift your portfolios to the stocks that will outperform. We are entering a seasonally strong time of the year.

And this year, energy stocks will be clearly in the lead.

That’s why I loaded my Growth investor shopping list with energy values ​​this year.

For more information on Growth investor and how you can access my shopping lists, click here.

Sincerely,

What yesterday's rate hike means for your portfolio

Source: InvestorPlace, unless otherwise stated

Louis Navellier

InvestorPlace

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
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