The Federal Reserve’s meeting this week is expected to be uneventful and without any change in rates. Meanwhile, the market leaders continue to expand beyond megacap technology.
CME FedWatch reports that the markets expect the Fed to hold steady at the conclusion of the Federal Open Market Committee on Wednesday afternoon.
According to the Global Strategy Team of TD Securities, the rate markets were quiet, the dollar weakened, the USD was at a 4-month low, while the yen firmed amid risks associated with intervention.
US Stock Futures are Mixed Early Monday. Dow futures have been less than 0.1% up, S&P500 futures mostly flat and Nasdaq futures roughly 0.1% down.
This week, the Fed will be releasing its quarterly report.
Fed will meet Tuesday and Wednesday. A decision is expected Wednesday afternoon. TD Securities anticipates “a fairly uneventful” meeting, with the central banks remaining on hold.
Alex Guiliano is the chief investment officer of Resonate Wealth Partners. He also anticipates a quiet meeting on Jan. 28, and believes that the Fed has “little to no reason” to reduce rates at this time, particularly after the Fed’s previous three rate cuts.
This cycle of rate cuts began in September, 2024.
The pressure placed on Jerome Powell, the chair of the CCB, has increased.
MarketWatch reports that President Donald Trump has tried to fire Fed Governor Lisa Cook and launched a criminal probe into Powell.
Guiliano expects Powell will tread lightly if this topic is raised during the press conference.
The economy and earnings are the focus of markets
Investors seem to be more concerned about earnings and economic prospects than the Fed.
Liz Thomas, SoFi’s head of investment strategies, said to MarketWatch: “I do not think that the market requires a haircut.” It can get along without one in early 2019.
The market leadership has widened. In recent months, growth sectors including technology have lagged behind more cyclical or value-oriented areas.
MarketWatch reports that Russell 2000 small caps outperformed the S&P 500 index in January.
MarketWatch reports that the US economy appears stable. Inflation is largely controlled and GDP growth has been solid.
Investors can now assess the trends in 2025 after a period of softness on the labor market.
Background with currency and rate
TD Securities noted a calm session in Treasuries with the rates at support.
The data was limited. S&P Composite PMI rose to 52.8% in January from 52.7. University of Michigan’s index increased to 56.4% from 54.0.
TD Securities reported that the USD fell to a new four-month low at the start of the week. The JPY rose on the back of the intervention risk, as well as the talk of coordinated rates checks by the Fed and Bank of Japan.
Watch out for near-term drivers
The biggest swing factor could be earnings. MarketWatch reports that Microsoft, Meta Platforms and Tesla will report on Wednesday (Jan. 28) and Apple on Friday, Jan. 29.
The S&P 500 still includes these names, but a broader market could be more resilient.
MarketWatch reported that Scott Helfstein is the head of Global X’s investment strategy. He said, “The S&P 500 earnings are expected to increase by 15% in this year, and it is priced at 22 times next year earnings.”
The majority of the gains last year came during earnings season. This suggests that fundamentals play a major role in driving stock prices. Lower rates, however, are “not necessary” to see stocks rise.
Politics and policy outlook
MarketWatch reported that Trump was expected to nominate a new Fed Chair, which according to Guiliano could cause “stock market volatility” when the market adjusts at midyear.
The traders are beginning to estimate a rate cut in June at a probability of 59.4%, and this could lead to a delay for the following meetings.
Fed Days still affect markets
Volatility around press conferences is common, even if Fed does not change its stance.
Thomas warned investors that they “listen to Jerome Powell so carefully and hold on to his every word” and “trade at the most risky time between 2 and 3 p.m. Eastern Time on Fed Days.”
The bottom line is With the Fed expected to remain at its current level, the focus has shifted to the earnings of the company and to the economy. FX rates and exchange rate movements are also indicating a more calmer environment.
Next leg will depend on the profit trend, data coming in, and Fed leadership change later this year.
First appeared on The ICD: This post Fed Week: Rates steady as Investors shift their focus to earnings, economic forecast and the outlook for investors.
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