The end of the Federal Reserve's rate rise cycle has generally been a good time to own US stocks, but an uncertain economic outlook and stretched valuations could dampen upside this time around.
After raising borrowing costs by 525 basis points since March 2022, the US central bank is widely expected to keep rates unchanged at the conclusion of its meeting next week.
Many investors believe that policymakers are unlikely to raise rates any further, bringing an end to the central bank's most aggressive monetary policy tightening cycle in decades.
If they are right, stocks could be poised for more gains. After the Fed's past six periods of credit tightening, the S&P 500 rose an average of 13 per cent from the final rate rise to the first cut in the following cycle, an analysis by financial research company CFRA showed.
Investors with a more bearish view, however, say it is only a matter of time before higher rates tighten economic conditions and bring a downturn.
The S&P 500 is already up more than 16 per cent this year, aided in part by a US economy that has been resilient as interest rates increased.
“The market will probably cheer it a bit if it is the end of the Fed rate hike cycle,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.
However, “I don't think the economy is going to stay out of a recession and that is going to be what ultimately decides the direction of stocks”, said Mr Schutte, whose company favours fixed income over equities.
Although most investors believe a recession is unlikely in 2023, for some a slowdown next year remains a possibility.
One worrying recession signal has been the inverted Treasury yield curve, a market phenomenon that has preceded past downturns.
The Fed will give its policy statement on Wednesday, with odds at 97 per cent that it will keep rates unchanged, according to the CME FedWatch Tool, which tracks bets on futures tied to the central bank's policy rate.
Traders see a roughly two-out-of three chance of the Fed leaving rates unchanged in November, CME's data showed.
Odds for December show about a 60 per cent chance rates of rates staying at current levels.
Fed Chairman Jerome Powell said last month that the central bank may need to raise rates further to cool inflation, promising to move carefully at meetings.
More of the kind of generally benign inflation data that has come over the past few months, however, could mean the Fed's quarter-point increase in July was the last in a cycle that shook asset prices last year.
“If Wall Street comes to the conclusion that the Fed has ended its rate tightening programme, that would at least offer support if not give [stocks] an additional catalyst to keep working higher,” said Sam Stovall, CFRA's chief investment strategist.
Investors are also attempting to gauge when the Fed will begin easing monetary policy.
CFRA found that the Fed has tended to cut rates an average of nine months after its last rate increase, with the S&P 500 gaining an average of 6.5 per cent in the six months following the cut.
Investors are pricing in a small chance of a cut as early as the Fed's January meeting, with expectations of a cut at about 35 per cent for May, according to the CME data.
Some investors, however, see challenges for the stock market even if the Fed is done with increases.
Analysts at Oxford Economics forecast further downside for global earnings, noting that stocks “have typically delivered far weaker returns following the final Fed rate hike when it has coincided with an EPS downturn”.
Oxford and other investors are also wary of stock valuations, which have ballooned this year.
The S&P 500 is trading at about 19 times forward 12-month earnings estimates versus 17 times at the start of the year and its long-term average of 15.6 times, according to LSEG Datastream.
Equity valuations are also threatened by the rise in bond yields, which has increased the attraction of fixed income as an investment alternative to stocks.
The yield on the 10-year Treasury is close to more than 15-year highs.
“If [the Fed] came out and said 'we're done,' yeah I do think that is probably cause for some celebration,” said Jack Ablin, chief investment officer at Cresset Capital.
“But I'm not sure how sustainable it would be given where stocks are valued relative to bonds already.”
T20 World Cup Qualifier fixtures
Tuesday, October 29
Qualifier one, 2.10pm – Netherlands v UAE
Qualifier two, 7.30pm – Namibia v Oman
Wednesday, October 30
Qualifier three, 2.10pm – Scotland v loser of qualifier one
Qualifier four, 7.30pm – Hong Kong v loser of qualifier two
Thursday, October 31
Fifth-place playoff, 2.10pm – winner of qualifier three v winner of qualifier four
Friday, November 1
Semi-final one, 2.10pm – Ireland v winner of qualifier one
Semi-final two, 7.30pm – PNG v winner of qualifier two
Saturday, November 2
Third-place playoff, 2.10pm
Final, 7.30pm
If you go
The Flights
Emirates and Etihad fly direct to Johannesburg from Dubai and Abu Dhabi respectively. Economy return tickets cost from Dh2,650, including taxes.
The trip
Worldwide Motorhoming Holidays (worldwidemotorhomingholidays.co.uk) operates fly-drive motorhome holidays in eight destinations, including South Africa. Its 14-day Kruger and the Battlefields itinerary starts from Dh17,500, including campgrounds, excursions, unit hire and flights. Bobo Campers has a range of RVs for hire, including the 4-berth Discoverer 4 from Dh600 per day.
ULTRA PROCESSED FOODS
- Carbonated drinks, sweet or savoury packaged snacks, confectionery, mass-produced packaged breads and buns
- Margarines and spreads; cookies, biscuits, pastries, cakes, and cake mixes, breakfast cereals, cereal and energy bars
- Energy drinks, milk drinks, fruit yoghurts and fruit drinks, cocoa drinks, meat and chicken extracts and instant sauces
- Infant formulas and follow-on milks, health and slimming products such as powdered or fortified meal and dish substitutes
- Many ready-to-heat products including pre-prepared pies and pasta and pizza dishes, poultry and fish nuggets and sticks, sausages, burgers, hot dogs, and other reconstituted meat products, powdered and packaged instant soups, noodles and desserts
Teaching in coronavirus times
FA CUP FINAL
Manchester City 6
(D Silva 26', Sterling 38', 81', 87', De Bruyne 61', Jesus 68')
Watford 0
Man of the match: Bernardo Silva (Manchester City)
CREW
%3Cp%3E%3Cstrong%3EDirector%3A%20%3C%2Fstrong%3ERajesh%20A%20Krishnan%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStarring%3A%20%3C%2Fstrong%3ETabu%2C%20Kareena%20Kapoor%20Khan%2C%20Kriti%20Sanon%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%203.5%2F5%3C%2Fp%3E%0A
TRAP
Starring: Josh Hartnett, Saleka Shyamalan, Ariel Donaghue
Director: M Night Shyamalan
Rating: 3/5
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent
Read more from Aya Iskandarani
The years Ramadan fell in May
10 tips for entry-level job seekers
- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
- Keep your CV professional and in a simple format – make sure you tailor your cover letter and application to the company and role.
- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
- Be professional and patient. Always be professional with whoever you are interacting with throughout your search process, this will be remembered. You need to be patient, dedicated and not give up on your search. Candidates need to make sure they are following up appropriately for roles they have applied.
Arda Atalay, head of Mena private sector at LinkedIn Talent Solutions, Rudy Bier, managing partner of Kinetic Business Solutions and Ben Kinerman Daltrey, co-founder of KinFitz
Dhadak 2
Director: Shazia Iqbal
Starring: Siddhant Chaturvedi, Triptii Dimri
Rating: 1/5
