Subscribe to the Market Signals podcast series on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.
 

Is the Fed Put Dead?

Stocks keep dropping, worry is in the air, and overall sentiment is getting quite worried. Are we near a bottom? In this week’s LPL Market Signals podcast, Jeff Buchbinder and Ryan Detrick discuss the tough spot the Federal Reserve is in, look at some recent mixed economic data, and more.

Fed Hikes

The Federal Reserve Bank (Fed) hiked rates by 50 basis points, as expected. Overall, they didn’t rock the boat much, with many more hikes expected later this year to combat inflation. Jeff notes he is optimistic that they may reduce 10 hikes to seven or eight this year as inflation slowly improves. Ryan mentions the Fed is in a tough spot, with more hikes needed to combat inflation, while the economy is showing some signs of weakness.

The strategists then discuss if the Fed put is dead. The Fed put is the idea that if stocks fall enough, the Fed will do things to help. We’ve seen this happen over the years, most recently in late 2018. Although neither Ryan nor Jeff want to say it is dead, it could be more on pause. The Fed’s main goal right now is slowing inflation, and more hikes might create continued volatility and anxious investors.

Economic Round Up

First quarter productivity was the worst print since 1947 while unit labor costs soared, adding to the worries about economic weakness amid higher inflation. Ryan notes that the fourth quarter was strong and second quarter should see a bounce back, while Jeff adds that inventory and trade both greatly impacted the recent number. The employment backdrop remains healthy as well, with 428k jobs added in April, which was better than expected. Economies typically don’t have recessions while jobs are being created, and the next several months should continue to see strong jobs growth. Lastly, earnings continue to be strong, with nearly 80% of companies beating estimates in the first quarter.

Washout near?

Overall sentiment is extremely bearish, which isn’t surprising given the bad start to the year. Sentiment polls, flows, and put/call ratios are all nearing levels consistent with major stock market lows. Both Ryan and Jeff think sentiment is skeptical enough to produce a nice low soon. Both agree though that maybe one more surge lower could be needed, but to chances of a 25-30% bear market are slim.

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

Member FINRA/SIPC

For Public Use — Tracking#: # 1-05278830