Roundtable: Overlooked Fed Storylines to Watch

The bank and tech sectors will be in focus all summer

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The Federal Open Market Committee (FOMC) two-day policy meeting will wrap up today, with CME Group’s FedWatch tool showing an 86% chance the central bank raises rates by 25 basis points. But that's not news.

What are some overlooked storylines amid the Fed fervor? 

"While the media primarily concentrates on the Fed's plans for interest rates and inflation, investors should also pay attention to the central bank's balance sheet normalization strategy. The process of reducing the Fed's bond holdings could have significant implications for the bond market, especially if done too quickly or not communicated effectively.

Investors should also consider the potential ripple effects of the Fed's actions on global financial markets. Emerging markets, in particular, can be vulnerable to changes in U.S. monetary policy, and any adverse consequences may eventually spill over to the broader market.

Lastly, investors should keep an eye on the Fed's forward guidance and the tone of their communication, as this can have a substantial impact on market sentiment and volatility. Unexpected shifts in the Fed's messaging could lead to fluctuations in asset prices and affect investment strategies."

--Danny Ray-CEO/Founder,

"So, the Fed officials are still planning to raise interest rates at the May 2-3 meeting. However, they'll be paying close attention to some important data, especially the survey of bank lending officers. This survey will give us insights into the risks facing the U.S. economy and might influence whether they decide to hold off on further rate increases.

Now here's an interesting aspect to consider. After the collapse of Silicon Valley Bank (SVB), the Fed has been keeping a close eye on how this has affected the willingness of financial firms to provide credit to businesses and households. It seems that while there were initial concerns, things have stabilized, and the impact seems to be more regional rather than a nationwide credit crisis.

On the investor side, there's been an increased expectation of a rate hike based on federal funds futures. It shows that people are pretty confident that the Fed will follow through with their plan to raise rates. This would bring the benchmark interest rate to the range that was projected earlier as the peak for the current round of tightening.

But let's not overlook some potential challenges ahead. Economists are predicting that the upcoming survey of lending conditions will reveal further tightening, along with a decline in credit from banks. The Fed will need to figure out if this tightening is just a natural consequence of the rate hikes or if it poses a bigger risk to the economy. It's important to keep an eye on how severe the tightening of lending standards is because it could impact access to credit, business investment, and even job growth and consumer spending."

--Jenna Lofton, CFP

"The media is way too pessimistic, with too much discussion about a recession.  Yes, the market is very narrow at this point in time, and big tech is in rally mode. Why not-- big tech is restructuring, interest rates won't hurt them, and the economy will pick up. Considering everything, the economy is doing okay!

The two sectors that should be leading the market at this stage in the equity cycle are tech and banking. Tech is doing well. The banks are in an unusual crisis. This is somewhere between management and, after many years, finishing up with the wrong shareholder base. The banks will boom once this is resolved. But big changes must happen, and Wall Street will not be happy. If this goes ahead, there will be a big fight. But way better than the potential $25 trillion in potential sovereign risk.

The stock market looks ahead. Remember, stocks lead earnings, and earnings lead the economy. Earnings are okay, valuations are not stretched. Time will tell; timing is impossible, but it looks as if the stock markets are in the early formation phase of another Bull Market.

--Warren William, "Driven by Data", smartest-data blog

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