NEW YORK (Reuters) – The U.S. Federal Reserve raised its rate target by 0.25 percentage points to 5.00% to 5.25% on Wednesday, but will hold off on rate hikes that hinted at the possibility. The cycle of rate hikes that have plagued markets since last year may be coming to an end, but uncertainty about stock levels and the economic outlook has investors wary of further turmoil.
Fed Chairman Jerome Powell said in his post-FOMC briefing that high price pressures were a concern for the Fed and that the Fed was prepared to raise rates further if needed, but it may have raised the policy rate in sufficient.. He also expressed the opinion that there is a possibility.
In principle, this is welcome news. But some investors worry the stock is overpriced after the S&P 500 is up 6.5% year to date. Many speculate that the Fed’s interest rate hikes could push the economy into a recession later this year.
“The Fed’s preparations to stand still is one step, but it is not the answer,” said Angelo Crucafas, investment strategist at Edward Jones.
The US stock market continued to fall on the 3rd. The S&P 500 index closed up 0.7%.
Still, US stocks have risen in recent weeks despite concerns about the collapse of regional US banks and the debt ceiling. The S&P 500 index is up 6% since mid-March. The S&P 500 index was trading at 18.2 times expected earnings, according to Refinitiv Datastream. The historical average is 15.6 times, a level that some investors find expensive.
“I think the market is a little more open to shocks,” said Matt Perron, director of research at Janus Henderson Investors, who said the market has risen and valuations are all over the place.
Perron is an underweight equities and growing allocations to healthcare stocks are considered resilient to disruptions.
Many investors believe that rate hikes will begin to weigh on growth and eventually lead to a recession. But Powell said in a briefing session that a recession is likely to be avoided, and that indicators such as employment and retail sales point to a relatively strong economy.
“Even if we stop raising rates now, we’re still going to have a recession,” said Brent Schütte, chief investment officer at Northwestern Mutual Wealth Management, which has been moving into bonds from equities. for months.
On the 3rd, new concerns emerged about regional banks. PacWest Bancorp, a California bank holding company, plunged nearly 60%, and local bank stocks such as Western Alliance Bank also sold off.
Still, the stock market has rebounded this year despite the concerns of many investors, and that trend could continue.
Jason Draho, head of Americas asset allocation at UBS Global Wealth Management, sees risks in equities as a “disadvantage.” But he said investors had already trimmed their holdings in preparation for a recession, accumulating cash that could return to the stock market.
