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The markets rebound.

The markets have finally had a good month, as the previous two were quite ugly. The rebound we have been experiencing can likely be traced to the hopes of a Fed pivot away from rising interest rates by year end. A narrative is taking hold that inflation may have finally peaked, leaving the Fed near the finish line on rate increases. While I do believe inflation has likely peaked, I do not necessarily believe the Fed will move so quickly to a dovish stance (unless inflation numbers drop aggressively, and the economy tips into an obvious recession).  

Additional rate hikes to come.

We are still looking at a .75% rate hike this week and a probable .5% hike in December. Should inflation data remain stubbornly elevated, additional .25% hikes are likely to follow. The “soft landing” opportunity could still emerge, if the Fed opts to hold off on post-December rate hikes. A pause would allow the economy to absorb the prior rate hikes. Remember, it takes time for interest rate increases to affect markets and inflation, which is one of the main reasons the Fed front loaded their hikes to begin with.

Earnings season results. 

Earnings haven’t been great. They also haven’t fallen off a cliff. Ironically, this might be a solid place to be, considering what the Federal Reserve is attempting to accomplish. The main goal? Slowing down the economy enough to tamp down inflation. Weaker earnings from companies signal that Fed tightening is beginning to take hold.