The Fed has never raised the target interest rate four times in a row, with a 75 basis point each time – till today. They still need to beat inflation.
Today, they harmed retail stocks, hurt consumers, and decreased real estate values.
Granny Retail was gaining strength and displaying demonstrated Triple Play momentum leadership and positive price action above until the Fed announced their news. This will put retailers and consumers under stress. I will evaluate how the hike impacts consumer behavior by looking at Granny Retail (XRT), will address elevated levels of consumer debt and dig more into the components of CPI.
There is uncertainty about how effective these rate hikes reduce inflation, since they are still far from 2%. The Economic data is mixed. Corporate Earnings are holding steady for now; however, given the uncertain economic environment, investors should exercise risk governance.
Shelter comprises one-third of CPI, which was 6.6% last month. Rents will continue rising higher, while food and energy remain elevated and are also large CPI weightings. Mortgage rates have risen to 7% from 3.5%, making it impossible for some families to purchase property. People who cannot afford to buy must live somewhere, which will continue to put pressure on rental prices.
Additionally, the US savings rate is also at 3% – the lowest in the last 15 years. Consumers are tapping savings aggressively, charging credit cards and running up debts, all while real income growth stagnates.
Total consumer credit outstanding in the U.S. has hit record levels, as shown below.
Property owners are also accessing home equity credit at variable loan rates.
There is little evidence to support the Fed’s claim that it is making major progress on fighting inflation.
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Mish in the Media
Mish goes over Meta and Palantir and discusses how trends are switching on BNN Bloomberg.
Two US Stocks may have bottomed out on CMC Markets. 10/26/2022
Mish is patiently watching Macro Trends unfold on Ameritrade. 10/26/2022
How to Trade Post-Earnings on Business First AM. 10/25/2022
Small caps start the party and rally to resistance on Bloomberg TV. 10/25/2022
Will earnings surpise to the upside? See Mish chat on Real Vision Daily Briefing with Maggie Lake 10/24/2022.
Mish presents “Looking for Inflation in All the Wrong Places” for Against All Odds Research.
- S&P 500 (SPY): 370 support, 377 resistance.
- Russell 2000 (IWM): 174 support, 181 resistance.
- Dow (DIA): 318 support, 324 resistance.
- Nasdaq (QQQ): 261 support, 269 resistance.
- KRE (Regional Banks): 62 support, 65 resistance; same as before.
- SMH (Semiconductors): 182 support, 189 resistance.
- IYT (Transportation): 204 support, 210 resistance.
- IBB (Biotechnology): 127 support, 132 first resistance; same as before.
- XRT (Retail): 61 support, 65 resistance; same as before.