{"id":11917,"date":"2022-09-05T11:30:00","date_gmt":"2022-09-05T11:30:00","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=11917"},"modified":"2022-09-01T23:41:30","modified_gmt":"2022-09-01T23:41:30","slug":"feds-actions-are-just-one-factor-that-moves-stocks","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/feds-actions-are-just-one-factor-that-moves-stocks\/","title":{"rendered":"Fed&#8217;s Actions are Just One Factor That Moves Stocks"},"content":{"rendered":"\n<p>Last week, Federal Reserve Chairman Jerome Powell gave a speech in Jackson Hole that lasted under ten minutes and, as far as I could tell, included no new information. Powell reiterated the Fed\u2019s hawkish approach to inflation, stating the central bank would maintain \u201ca restrictive policy stance for some time.\u201d His comments were a repeat of what the Fed has been saying for months, but the market sold off sharply anyway<sup>1<\/sup>.<\/p>\n\n\n\n<p>Market consternation was tied to his statement that the Fed would \u201ckeep at [rate hikes and tightening] until we are confident the job is done.\u201d The market took this as a clear sign that this Fed would likely keep tightening even if the economy entered a recession, much like the Volcker Fed did in the 1980s to fight inflation. Post-Volcker, bond traders have come to expect that the Fed would rush to cut rates and loosen monetary policy any time the economy showed a hint of weakening, which is often referred to as the \u201cFed put.\u201d Chairman Powell seemed to be putting that assumption to rest.<\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<p><strong><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_09_05&amp;content=stock_market_outlook_report\">Key Factors to Help You Through Market Volatility!<\/a><\/u><\/strong><\/p>\n\n\n\n<p>During volatile times like this, it is essential to keep an eye on factors that are impacting the market such as earnings, economic growth, geopolitics, sentiment, and global economic trends.<\/p>\n\n\n\n<p>To help you keep an eye on these and other key factors, I am offering our just-released Stock Market Outlook Report. Get insight on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>August Sell-Side and Buy-Side Consensus<\/em><\/li><li><em>The U.S. Job Market<\/em><\/li><li><em>What\u2019s Next for Inflation and the Fed?<\/em><\/li><li><em>Zacks Rank August Industry Tables<\/em><\/li><li><em>Zacks Forecasts at a Glance<\/em><\/li><li><em>What\u2019s Next for the Market?<\/em><\/li><li><em>And more\u2026<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and would like to gain answers and insights to the questions above, download our free September Market Strategy Report today.<br><br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_09_05&amp;content=stock_market_outlook_report\"><u>IT&#8217;S FREE. Download the Just-Released September 2022 Stock Market Outlook<\/u><\/a><\/strong><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_09_05&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/p>\n\n\n\n<p><strong>_____________________________________________________________________________<\/strong><\/p>\n\n\n\n<p>In a sense, the market set itself up for this moment. By early August, interest-rate derivatives like overnight index swaps were predicting a fed funds rate at 3.3% by the end of 2022, with the same indicators forecasting <em>rate cuts <\/em>\u2013 yes, cuts \u2013 by the summer of 2023. These rosy projections ultimately pegged the fed funds rate at 2.5% by 2024, a source of optimism that arguably drove some of the market rallies over the last few weeks. Minneapolis Fed President Neel Kashkari put it best when he said \u201cthere\u2019s a disconnect between me and markets,\u201d explicitly adding that rate cuts by next summer were not realistic.<sup>3<\/sup> With Chairman Powell setting the record straight last week, the equity markets have been enduring selling pressure since.<\/p>\n\n\n\n<p>There is no doubt the market is sensitive to Fed policy decisions, particularly since the inflation issue means rate hikes and more monetary tightening are firmly on the table. But I think we\u2019ve reached a point where many investors see the entire fate of the stock market as resting in the Fed\u2019s hands, which I think short-changes other \u2013 arguably more important \u2013 factors that drive stocks.<\/p>\n\n\n\n<p>The most important factor is corporate earnings. From 2000 to 2010 \u2013 which readers should note was a decade bookended by big recessions and bear markets \u2013 the earnings growth rate for S&amp;P 500 companies was a meager +6.0%, while the total return for the S&amp;P 500 was -9.0%. From 2010 to 2020, however, earnings growth for S&amp;P 500 companies was +174%, while the S&amp;P 500 returned +252%. While not perfect, this relationship between earnings and stock market returns exists throughout history.<\/p>\n\n\n\n<p>Over the past 80+ years, for example, the S&amp;P 500 has generated approximately 11% in annualized returns while corporate earnings have grown at about a 6% rate. This relationship implies that corporate earnings make up a bulk of total stock market returns, with the remainder coming from dividends and multiple expansions. I\u2019ll concede that the Fed undoubtedly plays a part in influencing the long-term profit landscape for businesses and spending power for consumers \u2013 which ultimately affects earnings \u2013 but framing the central bank as the primary driver of earnings and stock market returns is incorrect, in my view.<\/p>\n\n\n\n<p>When an investor buys a stock, they are buying a share of that company\u2019s future earnings, and they are also investing in the business\u2019s innovative abilities, management, competitive advantages, and ability to invest, hire, and grow. In the short-term, a company\u2019s share price will wobble with shifts in sentiment and, in the current environment, with changing expectations about inflation and interest rates. Over the long-term, though, the price of the stock should ultimately reflect a company\u2019s performance and its ability to grow earnings, which may be impacted by the Fed but not determined by it.<\/p>\n\n\n\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n\n\n\n<p>It appears we have entered a period where many market participants see the stock market as fully dependent on the Federal Reserve, which has led to forecasts about what the Fed will do and a fixation on every word uttered by Fed governors and Chairman Powell. While I certainly agree that Fed policy can and will affect economic activity down the road, the siloed view that Fed policy will \u2018make or break\u2019 markets seem overcommitted to the idea that interest rates are the only thing that matters over the next year or two. What about earnings, economic growth, geopolitics, sentiment, and global economic trends?<\/p>\n\n\n\n<p>To help you focus on additional factors like these that are impacting the market, I am offering all readers our\u00a0<strong><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2022_09_05&amp;content=stock_market_outlook_report\">Just-Released September 2022 Stock Market Outlook<\/a><\/u><\/strong><sup>4<\/sup>, which contains some of our key forecasts and factors to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>August Sell-Side and Buy-Side Consensus<\/em><\/li><li><em>The U.S. Job Market<\/em><\/li><li><em>What\u2019s Next for Inflation and the Fed?<\/em><\/li><li><em>Zacks Rank August Industry Tables<\/em><\/li><li><em>Zacks Forecasts at a Glance<\/em><\/li><li><em>What\u2019s Next for the Market?<\/em><\/li><\/ul>\n\n\n\n<p><em>And much more\u2026<\/em>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recent comments by Fed Chairman Powell prompted a selloff\u2014but Mitch argues that Fed policy is only one of the many factors that affect stocks. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-11917","post","type-post","status-publish","format-standard","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/11917","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=11917"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/11917\/revisions"}],"predecessor-version":[{"id":11919,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/11917\/revisions\/11919"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=11917"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=11917"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=11917"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}