Markets

Rate Hike Decision In Focus

Stocks around the world took their cues from the U.S. market's positive ride on Thursday, and the mood appears to have come full circle for today's session. But the overall mood remains tentative ahead of the Fed's two-day meetings, which get underway today.

I have been finding it hard to stay away from the Fed discussion in this space even though the topic is getting saturation coverage everywhere. We will hopefully make some headway on this issue Thursday afternoon as the FOMC statement comes out and we find out their decision.

Many in the market have lately been advising the Fed to take note of the emerging China-centric uncertainty and the resulting market volatility. They are basically telling the Fed that conditions aren't right yet for the start of the tightening process. The other side, which includes yours truly, contends that the Fed should announce a token rate hike on Thursday and accompany that with unambiguous assurances of being slow and deliberate in future interest rate hikes. These two narratives are about evenly balanced in market expectations at present, which means that a big part of the market will be 'surprised' at the Fed announcement tomorrow afternoon.

The Fed issue is very important, but we have to be mindful of the fact that there is more the investing life than what the central bank will or will not do. Of particular importance to stock market investors is the global economic growth outlook, which determines the corporate sector's earnings power.

We know that the earnings picture has been fairly weak lately - earnings were down in Q2 and expectations are for another decline in Q3. The weak FedEx ( FDX ) earnings report this morning, the first Q3 earnings announcement, doesn't provide an inspiring start to this coming earnings cycle. But we will have to wait another three weeks before the reporting really gets underway.

The Fed decision is no doubt very important for the market, but other things are important as well… and the most important of these other things is earnings. We need to be as much, if not more, mindful of developments on that front. Given what we saw in Q2 and what is expected for the current period, investors have no shortage of things to worry about.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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