Fed Misdirection Moves The Market

Markets didn't care for Fed Chairman Powell's comments last week and external events are starting to factor in.

The Fed continues to give mixed signals about future rate decisions and the market continues to disbelieve. Currently, Fed Funds futures show a 98% probability of no rate hike in November and a 74% probability of no rate hike in December—both having risen in the past few weeks. Meanwhile, the market is concerned about the current status of interest rates and how that may affect consumers going forward. The 30-year mortgage rate is approaching 8% and the 10-year Treasury yield is approaching 5% - both firsts since 2000.

Meanwhile, Retail Sales came in last week higher than expected and higher on a year-over-year basis.

Two consecutive months of higher Retail Sales - +0.7% in September and +0.8% in August - point to a strong consumer. Initial Jobless Claims continued to drop to the lowest rate since March of this year and have declined 25% since the peak in June of this year. There are multiple Fed speakers this week to keep the market off balance. The conflict in the Middle East is not easing and crude oil prices, which had declined, are 7% higher. Higher oil and high interest rates could put pressure on consumers.

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