Digest readers’ thoughts on where interest rates and the market are headed

 

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Now, let’s jump to Digest subscriber Thomas L. talking about Wednesday’s Fed announcement:

I believe the Fed saw how the markets were starting to take off and they fear that if they don’t quell the markets, inflation won’t come down.

So, they talked about more rate hikes to keep the markets in check so they can have time to digest the data and let more data come in that shows inflation coming down.

We’ll return to more of Thomas’ thoughts in a moment. First, some context.

In our Wednesday issue, we asked for feedback.

Specifically, we wanted to get readers’ thoughts about the Fed “pause” and where the Fed will take interest rates in 2023. And we wanted to know if readers believe we’re starting a new bull market today.

The response was fantastic. A genuine “thank you” to everyone who wrote in.

Given the volume of feedback, today’s Digest is a “Reader Takeover.” Please note that while we would love to include all the responses we received, we don’t have the room.

So, the reader commentary below best represents the collective opinion of the many responses we received, as well as some of the contrarian opinions for a holistic, balanced view.

Again, a huge “thanks” for your sharing your market wisdom/perspective with us. We look forward to doing this more in the future.

(To the readers we quote, please understand that we have to annotate some of your content for length.)

Where will the Fed take interest rates in the back-half of 2023?

Let’s pick back up with Thomas L. from a moment ago:

My guess is next month, the Fed will not raise rates and say the same thing if inflation comes down some but not enough for their liking.

Thomas wasn’t the only Digest reader who believed Powell was trying to talk down the market with his reference to more rate hikes.

Let’s go to Digest reader John M.:

I think Powell purposely threw in the last statement that two rate hikes are still in the mix for the rest of the year.

One, because he didn’t want to lite a fire under inflation by his move to pause rates at this meeting (which would happen with the stock market if he only said he was pausing this time) and two it leaves the door open in the near future for hikes if his view of the economy at the moment is wrong.

He is setting himself up to be a winner either way. It’s the same old, same old FED double speak we have been used to for several months now.

Partly because neither him or anyone else really knows what is going to happen with the economy. There are only guesses and hopeful visions into the future.

And this comes from Frederic P:

I believe the goal of the Fed was to spook the market and continue to fight the inflation narration, while knowing that a mild recession is more probable and the real cure to inflation.

Not everyone is confident that the Fed is completely in control of the situation

Many readers expressed frustration with Powell and the Fed for everything from creating a “sucker’s market” in stocks to creating a “haves/have nots” economy as we move deeper into the year.

From Digest reader Robert P.:

Doesn’t a house of cards eventually fall?

I am surprised they kept the economy alive this long.

Greed? Appears to still be good.

And this comes from Daniel H.:

[Wednesday’s] pause creates a “sucker’s market” where greed overcomes fear.

It’s a political move as much as an economic one. Powell doesn’t want to crush the economy as continuing rate hikes will likely do. He doesn’t want a serious recession/depression on his watch at the Fed. He doesn’t want to lose his job any sooner than may be necessary because of the COVID QE debacle that none of us can forget…

Let’s not forget that The Fed is a consortium of the major investment banks in the US set up in 1913 by the “then” richest men in the US to prevent bank runs and a default on the national debt. While Congress approves the Chairman, it still remains beholden to the investment banks that all (or most) of its members are aligned with.

Also, remember that for (what I believe) is the first time in history that the US Treasury and The Fed are both run by the current and former Chairman (or is it person now) of the Federal Reserve at the same time.

Talk about letting the fox into the henhouse!

Digest reader Boyd S. sees more pain coming for the economy with lower-income workers bearing the brunt of the impact:

My view is that the bottom half to 3/4 of wage earners/consumers are being challenged with a lack of income, which I think will impact the economy during last half of 2023.

The top 1% of earners will likely continue their lifestyle.

Finally, as to more rates hikes and their potential fallout, here’s Digest reader Doug S.:

Not raising rates in June was a given, given the huge issuance of Treasuries required from the debt ceiling chaos. Will the Treasury have to pay up even more to find buyers for the paper?

Commercial real estate is facing a slippery slope to double digit default rates and how much of that sector’s illness is driving the junk bond default rise? There sure is a credit crunch.

I don’t know how you get two more quarter point rises and not topple the house of cards.

And what about the stock market? Is this new bull for real?

We’ll continue with Doug S.:

As for a bull market, for certain stocks, yes, but it is hard to see what is going to drive a broad-based bull market unless the entire S&P finds 15% cost savings through AI investments over the next six months. The chances of that????

Doug wasn’t alone in expressing caution about today’s high-flying stock market. Here’s Digest reader Daniel H.:

I’m going to see what happens in Q3 and Q4. I might move some cash into equities in Q4; we’ll just have to see.

Until then I’m sticking solid with a 2.25% mortgage, two 1.9% auto loans, and zero credit card debt.

And here’s Digest reader Frederic P. wondering about AI’s role in this rally:

In my opinion, AI hype is a bit overdone, and large cap growth are better and safer in low growth environment with stable interest rates.

AMZN, GOOG, NFLX and Chinese stocks with a lower USD coming are difficult to resist.

Meanwhile, Digest reader Sharon S. is happy with gains so far, but what happens from here isn’t clear:

I was so excited about the first half of the year but honestly it is hard to decide what to do with some of the nice gains in my account that I do not want to lose…

I think it will be hard to keep momentum with the Fed pulling the strings as a puppet master.

Finally, here’s Jeremy G. with his take on the economy and market projections:

Consumer is spending on needs, not wants.

Full effects of increased interest rates are not yet in place.

I think Fed will only do one quarter point raise this year, but until inflation is down to 2%, no cuts.

I think rally continues until early Sept, then falters. Dow and S&P flat for 2023. Nasdaq up for 2023.

All three down double digits in 2024.

That last sentence certainly catches my eye. I’d like to hear more from Jeremy about this heightened bearishness in 2024.

Again, a huge “thank you” for sharing your thoughts with us

We’d like to feature reader perspectives more often. While we may solicit them by asking a specific question, feel free to sound off and let us know your thoughts on a Digest topic or headline event. We value your market wisdom.

On that note, if any of the reader commentary above caught your eye and you want to respond, just hit “reply” and let us know your thoughts.

Thank you again, and we look forward to another “Reader Takeover” in the future.

Have a good evening,

Jeff Remsburg