A top market strategist gives his thoughts on the Fed and the markets as the final rate hike of 2022 arrives

Phil Rosen

Dec 14, 2022, 17:53 IST

A top market strategist gives his thoughts on the Fed and the markets as the final rate hike of 2022 arrives

Chair of the U.S. Federal Reserve Jerome Powell speaks at the Brookings Institution, November 30, 2022 in Washington, DC. Powell discussed the economic outlook, inflation and the labor market.Drew Angerer/Getty Images

Hi you. I'm senior reporter Phil Rosen.

At 2 p.m. ET, I'll be tuning in for the Federal Reserve's final interest rate announcement of the year. Everyone's expecting a 50-basis-point hike, which would be smaller than the last four but still jumbo by historical standards.

Fed Chair Jerome Powell is slated to speak at 2:30 p.m. ET, and I, like many of you, will be hanging on his every word for an inkling of what the central bank is thinking about the economy.

Ahead of this year's final and possibly most pivotal policy decision of the year, I caught up with New York Stock Exchange senior market strategist, Michael Reinking, to find out more.

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1. Yesterday's CPI report marked a best-case scenario for stocks. Indexes ultimately gave up their big gains from earlier in the day, but there are still reasons why investors couldn't have asked for much better than what they got in the November inflation report.

Here are some things to consider:

Cooler economic data suggests that the Fed's rate hikes are working, and that the central bank could slow down the pace of increases sooner than expected
That, in turn, reduces the prospect of a hard landing in 2023
When investors have reason for optimism, that fuels gains for stocks

"CPI has been the biggest volatility-inducing event this year, with Fed days right behind," NYSE's Reinking told me on a video call yesterday.

The S&P 500 has moved up or down 2% on CPI days this year, according to Reinking, and on Fed days, it's seen a similar 1.8% swing.

Now, as the two events fall back to back, the strategist is expecting more market tumult.

"There's really no debate as to what the Fed's going to do, it's going to be 50 basis points," Reinking said. "The Fed's been sending this message that rates will go higher for longer, but markets are not necessarily believing that at this point."

Reinking expects Jerome Powell to use hawkish remarks to play "whack a mole" with the market in an effort to tame expectations, which could dash hopes for a Santa Claus rally.

"Powell's going to try to temper the enthusiasm of markets because financial conditions are easing, which is working against everything the Fed's trying to do," he explained. "Powell's gonna to keep trying to bang home this message, but markets have digested that and are marching to their own tune at this point."

What's your year-end stock market outlook? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.

In other news:

2. US stock futures struggle for direction early Wednesday, as investors await the Fed's latest rate hike decision. Meanwhile, UK inflation fell from a 41-year high ahead of the Bank of England's rate decision Thursday. Here are the latest market moves.

3. Earnings on deck: AutoZone, Lennar Corp., and TUI, all reporting.

4. UBS economists picked out their top stocks to weather a recession in 2023. Defensive names will outperform at the start of next year, the firm's strategists said. See their list of 37 companies to buy now.

5. Congressman Parick McHenry said Sam Bankman-Fried is a world-class manipulator. The ex-FTX chief was arrested late Monday, with the North Carolina rep calling the implosion of the crypto exchange an "old-school fraud."

6. BlackRock warned that investors shouldn't expect the Fed to save the day, since policymakers will keep rates high even if a recession crushes stocks. The firm's strategists recommend avoiding equities and long-term bonds for now — and say that at this point a recession is "foretold."

7. OPEC slashed its growth forecast for the first quarter, citing global headwinds that will require "vigilance and caution." The cartel now predicts demand will be roughly 380,000 barrels a day below previous estimate. The announcement follows October's announcement of a 2 million barrel-per-day supply cut.

8. One of 2022's top performing fund managers built a downturn-resistant portfolio. They explained how they are investing as they head into an uncertain 2023 — and why they are focused on these five sectors.

9. A real-estate investor who owns nine retail properties explained why he prefers commercial properties over residential. Justin Sloan made the switch because it presents better diversification, capital appreciation, and more predictable, steady returns. Here's his full strategy.