Today, investors will be attentive to one of the most important monetary decisions, the Fed meeting in which the chairman of the US federal reserve bank will officially announce the medium to long term pathway for US monetary policy, and most importantly the interest rates on the greenback. Unfortunately, today’s meeting will be held while the global economy is witnessing acute political & economic fraught starting from the pandemic recovery struggle to supply chain disruption issues headed by Asian countries and finally the Ukraine war, the straw that broke the camel’s back driving commodities prices to skyrocket.
Apparently, the main concern for medium- and long-term investors wouldn’t be today’s interest rate hike, be it 25 basis point or 50, since the markets have already priced the hike decision once Powel waved it to investors in January 2022. Of course, the markets will be stormy today for day traders. From their all-time highs in December 2021 both the S&P & DJIA retraced 23% from March 2020 rally down approx. 13%, trading near the 4,200 and 32,300 support levels while the dollar index’s (DXY) 20 EMA crossed the 50EMA to the upside indicating higher probability for the USD to retest the 100-resistance zone. As for the Volatility index (VIX), its near pre-pandemic levels and easing down from February 2022 30’s level.
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The US economy expanded 7.7% in 2021 compared to 3.4% contraction in 2020; however, as stated by the federal reserve bank of Philadelphia, it is forecasted to see slower growth projections until 2024. The forecasters predict real GDP will grow at an annual rate of 1.8% in the first quarter of 2022, down 2.1% from the prediction of 3.9 percent in the last survey. It is expected that the real GDP will grow at an annual rate of 3.7 % this year, 2.7 % in 2023, and 2.3 % in 2024. Reviewing the US T-bills, it is communicating the same message. The gap between 2yrs versus 10yrs T-bills (1.81% vs 2.14%), and the 5yrs versus 30 yrs T-bills (2.10% versus 2.50%) is almost diminishing sustaining an economic slowdown. Furthermore, the yield curves spiking late December 2021 mirrored the fed’s intention of increasing the interest rates. The current situation would have a minor effect on consumer staples and healthcare companies, which are not interest-rate dependent, the independence of these categories would highly prevail once yield curves invert, and investors tend to target defensive stocks consumer staples and financial sectors, which are often less affected by a slowdown or a downturn in the economy.
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