Three quarters or a full percentage point from the Fed? That’s the big question on traders’ minds on Wednesday. Wolfe Research’s Chris Senyek represents the consensus: “Our sense is that markets could be set up for a short-term dovish recovery if the Fed hikes +75 bps (75 basis points/three-quarters of a point) and Powell doesn’t it does. further ramps up its hawkish rhetoric,” he said in a note to clients on Wednesday morning. We could use a relief rally. The S&P 500 is about 70 points below where it was at the close of the Federal Reserve’s last meeting on July 27. Recent Fed meetings have seen the S&P close on the day of the announcement, but no pattern after that. . On July 27, the rally continued for three days. After the June 15 meeting, the market fell and bottomed out to a new low for the year (3,666). After the May 4 meeting, the S&P fell for three straight days, and after the March 16 meeting, a rally continued for several days. There is no pattern. The problem is easy to identify. There are signs that inflation may peak, but not enough signs that it will decline as quickly as the Fed wants. Until we know how long higher inflation will persist, we don’t know the Fed’s terminal rate or the rate at which they will stop raising. And this is giving rise to a great diversity of opinions. Expectations are slowly rising. Most still hope the terminal Fed funds rate will be between 4.25% and 4.50%, but Senyek is one of many who believes the Fed will have to go much further: ” The committee will likely need to raise funds from the Fed at 5%+ in order to put inflation on a sustainable path back to its long-term target of 2% Bond ETFs Hit New Lows The World of ETFs of investable bonds is at new lows The two largest U.S. bond ETFs, Vanguard Total Bond Market ( BND ) and iShares Aggregate Bond ( AGG ), closed Tuesday at their lowest levels since 2008. Corporate bond funds also are at new lows, including the Vanguard Short-Term Corporate Bond ETF (VCSH) and the iShares Investment Grade Corporate Bond ETF (LQD). They hit their lowest level since 2020, but if the 2020 low is removed, it are at their lowest level since 2010. Surprisingly, there have been no outflows from these funds, likely because they have a f ort institutional support and broad bond funds like these tend to be “sticky”.
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