Medicare Agent News: A Big Day for Bonds

Tuesday, September 27, 2022

A Big Day for Bonds

By Alex Eule | Monday, September 19

Bears vs. Bulls. With the Federal Reserve preparing to raise rates yet again this week, Treasuries were in focus Monday and the action didn't disappoint. The yield on the 10-year Treasury note briefly crossed 3.5% Monday for the first time since 2011, before settling at 3.489%, still the highest level since April 12, 2011.

The two-year yield, which rose nearly nine basis points, or 0.09 of a percentage point, settled at 3.946%, its highest yield since Oct. 17, 2007.

These are significant milestones, and they're wrapped up in all the key themes preoccupying investors these days: interest rates (short and long-term), Fed policy, earnings, the state of the consumer, unemployment, and, of course, inflation.

No one doubts that the Fed is readying a major move when it concludes its two-day meeting on Wednesday, boosting its target rate either three-quarters of a point, or a full point. We'll know by 2 p.m. Wednesday. Then attention will quickly shift to how much is left in the rate-hiking cycle -- a question that reporters will ask Fed Chair Jerome Powell repeatedly during his post-meeting press conference.

The bears see stubborn inflation that leaves the Fed no choice but to keep lifting rates to force the economy into a significant recession. The bulls see much of the work as already being done, with the impact of this year's hikes still working their way through the system, meaning the Fed is close to the end of its rate cycle. A few of the wild cards are the labor market, the state of earnings, and the war in Ukraine.

A mini version of the bull-bear battle played out Monday. Stocks opened deep in negative territory, with the Dow Jones Industrial Average down nearly 0.9% at the 9:30 open. But by the afternoon stocks were rebounding. The Dow closed up 0.6%, just off its high for the day.

Which brings us back to Powell and company. The tone of Wednesday's press conference will be key to determining the market's direction by the end of the week. Stocks have rallied during the Fed chair's last four press briefings as Powell tried to balance rate hikes with confidence that the Fed was in firm control and still able to manage inflation without doing too much harm to the economy. His last four speeches have triggered gains of 2.2%, 3.0%, 1.5% and 2.6% for the S&P 500.

Now, the question is how much Powell's tune will have to change and what that means for stocks on Wednesday, and thereafter. Here's the view from Solita Marcelli, chief investment officer of the Americas at UBS Global Wealth Management:

In the post-meeting press conference, we expect Fed Chair Jay Powell to send a very clear message, just as he did in his recent Jackson Hole speech. The Fed is committed to restoring price stability and will not hesitate to use its tools to accomplish that. Up until now, Powell has expressed optimism that inflation could be brought down without a hard landing for the economy, and it will be interesting to see if he changes that message this time.

If the Fed increases by three-quarters of a point -- the most likely outcome -- the Fed Funds target rate will be 3% to 3.25%. The futures market currently sees rates topping out around 4.5% by mid 2023. That leaves a few rate hikes to go. It's just a question of how long it will take to get there -- and how long before they start coming down again. Your move, Chair Powell.