The Lookout | Week of October 31, 2022

The Lookout | Week of October 31, 2022

The primary focus for this week will be when the Federal Reserve announces its interest rate decision on Wednesday. Markets are expecting another 75 basis points increase, but the real center of attention will be on Fed Chair Jerome Powell, who investors hope will give some signal that rate increases will be paused in early 2023. Hunter Frey of Catalyst Funds, Rational Funds, and Strategy Shares and Dan Rudnitsky of SMH Capital Advisors give us their insights ahead of a busy week for investors.

Major Market Events

Monday, October 31: EUR CPI (YoY) (Oct) & AUD RBA Interest Rate Decision (Nov)

Tuesday, November 1: US JOLTs Job Openings (Sep) & US ISM Manufacturing PMI (Oct)

Wednesday, November 2: US Fed Interest Rate Decision & US ADP Nonfarm Employment Change (Oct)

Thursday, November 3: GBP BoE Interest Rate Decision (Nov) & US Initial Jobless Claims

Friday, November 4: US Unemployment Rate (Oct) & CAD Employment Change (Oct)

Hunter Frey, Investment Analyst, Catalyst Funds, Rational Funds, Strategy Shares

• Stocks remain volatile amid soft corporate earnings and Wednesday’s Federal Reserve interest rate decision. Our base case is a 75-basis point hike on Wednesday. Powell’s rhetoric on the path of rate hikes will be watched closely by markets with the hopes of a hike slowdown in the first half of 2023. We believe that the probability of an interest rate hike tempering (a 50-basis point hike in December) has increased with CPI showing some downward moments (though still at 40-year highs) and the inversion of the 3 month-10-year yield curve. We remain tactical on equities as the seasonal October rallies, historical equity outperformance after midterms, and potentially cooling Fed hawkishness remain positive short-term catalysts.
• Employment data is also set to print on Friday with important significance to monetary policy trajectory. The validity of a Fed pivot may be pushed by unemployment data.
• Eurozone inflation surged to all-time highs amid a slowing economy with China economic activity also contracting in October. Rishi Sunak, UK’s new Prime Minister, says an inevitable tax increase may be necessary to offset Britain’s public finance gap. Global markets remain in troubling waters propelling the strength of the U.S. dollar. All in all, global market and domestic markets remain in a state of uncertainty with tactical opportunities among asset classes present throughout the rest of the year. Investors should remain nimble to squeeze out returns. Energy market uncertainty persists as president Biden announced a potential windfall tax on producers accruing profits

Daniel Rudnitsky, SMH Capital Advisors, and Senior Portfolio Manager of an Income Strategy

• Over the next seven trading days, there will be four major events that could shape the market’s outlook for the rest of the year. Calls for Federal Reserve caution and easing back from the aggressive pace of hikes are growing. Whether their argument wins out when the FOMC meets again in December will depend on some key data over the next several days.
• On Nov. 2nd, the Federal Reserve will announce its latest interest-rate decision and give hints about its path forward. Wall Street views a fourth straight 75 basis-point interest-rate hike on Nov. 2 as a sure thing. What the Fed signals will happen next is far more significant, with traders increasingly betting that the central bank will start to ease up on its pace in December.
• On Nov 4^th, the October jobs report will provide an important look at how much hiring is slowing. Another upside surprise could dash hopes that the Fed will dial back its rate hikes to half a percentage point in December.
• Then on Nov. 8, the mid-term elections may change which party controls Congress. The market likes a gridlocked Congress since it tends to produce few policy shifts. And on Nov. 10, the consumer price index data will be released and play a key role in shaping market expectations for the Fed’s path.