Stocks Down To Start The Week, Traders Look To This Week's Economic Reports For Direction  Image: Bigstock Stocks closed lower yesterday as traders continued to digest Jerome Powell's comments on interest rates last week. At last Friday's Jackson Hole symposium, Fed Chair, Jerome Powell gave a speech where he reiterated the Fed's stance that they would "forcefully" work to combat inflation (read as keep raising interest rates), and he acknowledged that it would likely "bring some pain to households and businesses." Quite frankly, he didn't say anything that he hasn't basically been saying all along. In fact, his comment on Friday that "we are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%," was consistent with what he has been saying virtually all year. However, with a sharp double-digit run-up in stocks over the last two months, traders likely used this an opportunity to pull some profits. The economy has slowed in the first half. That's indisputable. But the second half forecast is looking much better. And Q3 is estimated to come in at 1.6%. Way better than Q2's -0.6%. The Fed's next FOMC meeting is September 20-21. The consensus now is that they will raise rates by another 75 basis points. But the jury is still out on what happens at their following two meetings in November and December. For one, the Fed had previously floated that they expect to see the Fed Funds rate between 3-3.5% (the midpoint is at 2.38% currently), by year's end. After September's 75 basis points, that would put the Fed Funds at 3.13. That means they would've already hit the low end of their range, and would be just 37 basis points away from hitting the top end of their range. That range, of course, could change. But it wouldn't take much more after September to get to 3.5%. Additionally, they also referenced how their decisions would be data driven. While last month's inflation report showed inflation ticking down again for the second month in a row (albeit just a little), it does appear to have peaked. And if inflation continues to tick lower, that could influence the trajectory of their tightening pace. The good news is that the economy remains strong (positive growth ahead), and the Fed is committed to bringing down inflation. The big question, of course, is how much will the Fed's actions weigh on stocks, not to mention how inflation is weighing on stocks now. In the meantime, stocks are up solidly from their June lows, although, still down quite a bit from their all-time highs. But since the market is forward-looking, it's all about what's ahead that will drive prices. And the second half of this year is expected to be much stronger than the first half. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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