The Fed is expected to raise rates again in the near term, but investors should not think that the Fed is trying to steer the market away from steep declines.
After the September payrolls report, investors were pricing in a rate hike by the Fed. The FedWatch tool showed an increase in the likelihood of a 75-basis-point increase.
After the Labor Department released its payrolls report on Friday, Jan Szilagyi, CEO and co-founder of Toggle AI, an investment research firm, told Insider that he thought the Fed had the ability to push ahead aggressively to combat inflation. There were 263,000 new jobs in the US in September. The unemployment rate went down.
The jobs report sent US stocks tumbling. The S&P 500 lost more than 3%.
"Today's jobs report probably does not change the Fed's fight against inflation, which is still on track for another 75 bp rate hike in early November," said Pride in a note.
According to Bank of America, the report could lead to new lows for the stock market this month.
The US stock market is in a bear market and the S&P 500 is down more than 20%. The Fed has been raising interest rates in order to bring down inflation which is sitting around a four-decade high.
I don't think the Fed is trying to help the market on a variety of metrics. "The Fed is focused on inflation, which is different from some other situations where you have an economic crisis or a financial crisis," Szilagyi said in swatting away the idea of a so-called "fed put".
A Fed Put is a belief among investors that policymakers at the US central bank will do everything in their power to help the stock market if it drops quickly. According to the Corporate Finance Institute, the market has seen Fed Puts in the last 30 years.
The bear markets that ran back to the 1929 crash on Wall Street have taken the stock market down by over 30%. In the current downturn, the S&P 500 is off by more than twenty percent.
He said that the market has come down so dramatically that they now need to pivot. Inflation wasn't a problem at that time. I believe you're in a situation where the market is going to be damaged because of inflation.
The idea that signs of stress in financial systems would lead the Fed to dial back on rate moves, including concerns about the health of Swiss lender Credit Suisse and the Bank of England's emergency £65 billion bond, was erased by investors on Friday.
There is a small chance of a pivot, but it is being priced out. If there is ever hope of reaching a major low in the market, we need to retest the June low.
The headline reading of the August inflation report was 8.3%. The fed funds rate is expected to be raised for the sixth time in a row at the November 1-2 meeting. The Fed has raised the rate by 75 basis points in the last three meetings.
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