Fed Week Kickoff

Key Takeaways

• FOMC Meeting And Fed Outlook
• Disney Stock Continues Underperforming
• Auto Strikes Continue

Stocks closed slightly lower on Tuesday ahead of today’s Federal Reserve Open Market Committee (FOMC) meeting. Both the S&P 500 and Nasdaq Composite fell 0.2%. Bonds also fell on Tuesday pushing yields up to levels not seen in over a decade. The ten-year yield closed at 4.32%, the highest close since 2007. Yields on the two-year closed at 5.11%, their highest level since 2006.

Investors are waiting on the FOMC to announce what appears to be a forgone conclusion on interest rates. According to the CME, there is a 99.9% certainty rates will be left unchanged. However, what Jerome Powell says in his press conference following the meeting, along with the ever important dot plot (there’s a phrase I never thought I would say as a kid) will be what markets key in on. As of this morning, there is a 73% chance rates will stay unchanged when the Fed meets next, in November.

It’s not only our Fed meeting this week. The Bank of England (BOE) and Bank of Japan (BOJ) both meet this week as well. The BOE is expected to raise rates by one-quarter point to 5.5%, the highest level for rates there since 2007. The BOJ is expected to sit tight.

Economic data reports continue to show a slowing economy, which is why the Fed will likely sit tight. Yesterday, we learned housing starts have hit their lowest levels since 2020. Rising mortgage rates have certainly put a damper on that market. If there is one thing that could potentially persuade the Fed to raise rates later this year, it’s oil. Crude oil prices settled on Tuesday at $90.48. That’s helped to push the price of gasoline higher by 11% between July and August to $3.88 per gallon.

Workers at the big three automakers continue their strike with threats of further strikes if significant progress isn’t made by Friday at noon. However, Ford did manage to reach a tentative deal with autoworkers in Canada, avoiding a strike there. A prolonged strike from autoworkers could cause car prices to jump again and potentially put pressure on used car sales whose prices recently just came down. The combination of increasing prices for gas combined with a possible increase in car prices could increase inflationary pressure and bears watching.

In individual stock news, shares of Disney fell over 3.6% Tuesday after the company announced a plan to spend $60 billion on theme parks and plans to double its cruise line capacity. Disney stock is down over 30% since February. Amazon
AMZN
stock was also down on Tuesday. The company announced plans to hire 250 thousand seasonal workers. That news sent the stock down 1.7%. According to an article in the Wall Street Journal, Goldman Sachs is in talks to sell their GreenSky lending unit. Goldman bought the retail lender a year-and-a-half ago and has regretted it ever since. The report says the deal would value GreenSky at $500 million, less than one-third of what Goldman paid. Lastly, shares on Instacart closed higher following their IPO on Tuesday. The grocery delivery company saw its stock settle at 33.70, up 12% from the IPO price.

For today, I expect the most significant action to take place sometime after 1PM CT. The immediate decision on rates is often the time when we see markets jump around a bit. However, with the near certainty rates will be left alone for now, I don’t expect the action to really begin until Powell starts speaking and markets have a chance to digest what he says. As always, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.