{"id":4839,"date":"2023-05-05T22:42:16","date_gmt":"2023-05-06T02:42:16","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-fed-is-set-up-for-a-pause-why-the-stock-market-is-set-for-a-fall\/"},"modified":"2023-05-05T22:42:17","modified_gmt":"2023-05-06T02:42:17","slug":"the-fed-is-set-up-for-a-pause-why-the-stock-market-is-set-for-a-fall","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=4839","title":{"rendered":"The Fed Is Set Up for a Pause. Why the Stock Market Is Set for a Fall."},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

Considering the way this year has gone, one would expect the Federal Reserve\u2019s likely pause in interest-rate hikes to send the stock market higher. That\u2019s not what happened\u2014and for good reason. <\/p>\n

The S&P 500 index had gained 7.7% this year, partially on hopes that the Fed will take a break. Economic growth has been slowing, dragging down inflation with it, providing Fed Chairman Jerome Powell with a reason to stop tightening monetary policy, if he so chooses. That\u2019s a relief to the market, which struggled last year with some of the fastest rate hikes in history.<\/p>\n

\n

Yet the stock market dropped when the Fed raised rates by a quarter-point but indicated that a pause is, indeed, on the way. The
\n S&P 500
\n fell 0.8%, while the
\n Dow Jones Industrial Average
\n dropped 1.2%. Only the
\n Nasdaq Composite,<\/span>
\n up 0.1%, finished higher. <\/p>\n

We can easily dash off a few reasons for this past week\u2019s decline. A market expecting a pause isn\u2019t a market that rallies when it gets what it wants. And while the Fed did signal the end of rate hikes, it didn\u2019t signal the beginning of rate cuts, leading some observers to refer to Powell\u2019s action as a \u201chawkish pause.\u201d But the biggest reason might be the continued collapse of bank stocks. <\/p>\n

The
\n SPDR S&P Bank
\n exchange-traded fund (ticker: KBE) dropped 8.1% last week, despite the sale of
\n First Republic Bank
\n to
\n JPMorgan Chase
\n (JPM), which was supposed to end the crisis but seems to have accelerated it instead. High rates, remember, are one of the main reasons that banks are under pressure in the first place, as depositors leave for higher-yielding alternatives. Another increase\u2014and a plan to stay high\u2014won\u2019t do much to help the situation. <\/p>\n

\u201cThe Fed is not really thinking about what can go wrong with the banking system,\u201d says Rhys Williams, chief investment officer at Spouting Rock Asset Management. <\/p>\n

Powell also played down the possibility that the Fed could\u2014or should\u2014do anything about the debt ceiling. Treasury Secretary Janet Yellen has put the X-date at June 1, less than a month away. Financial markets are worried, even if the stock market isn\u2019t. The cost of protecting against a U.S. default with credit default swaps has risen tenfold since the end of 2022, while Thursday\u2019s auction of one-month Treasury bills saw yields hit a record high of 5.84%. Add it to the list of things the Fed is not really thinking about.<\/p>\n

Of course, a stronger-than-expected jobs report did a lot to calm nerves about an imminent recession. But despite a big Friday gain, the S&P 500 was unable to get back to 4200, a key level that has acted as a ceiling on the index. And the longer the index remains unable to break through, the more likely it is that the next move will be lower. Evercore strategist Julian Emanuel puts the next support level at roughly 3800, down 8.1% from Friday\u2019s close of 4136.25, and then a drop to its bear-market low of just under 3600.<\/p>\n

\u201cThere are going to be much better risk\/reward opportunities to add to stocks than there are now,\u201d Emanuel says.<\/p>\n

As the clich\u00e9 goes: Patience, sometimes, is a virtue.<\/p>\n

Write to <\/strong>Jacob Sonenshine at jacob.sonenshine@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Considering the way this year has gone, one would expect the Federal Reserve\u2019s likely pause in interest-rate hikes to send the stock market higher. That\u2019s not what happened\u2014and for good reason. The S&P 500 index had gained 7.7% this year, partially on hopes that the Fed will take a break. Economic growth has been slowing, […]<\/p>\n","protected":false},"author":1,"featured_media":4840,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-4839","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe Fed Is Set Up for a Pause. 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