Medicare Agent News: Rates Up, Stocks Down

Tuesday, December 6, 2022

Rates Up, Stocks Down

By Nicholas Jasinski | Monday, December 5

Room to Rise. Bond yields surged today, after a WSJ report suggested that Federal Reserve officials could signal a higher peak in interest rates next year. That's even as the central bank appears set to slow the pace of hikes at its meeting next week.

Futures markets are set on a 0.5 percentage point increase next Wednesday, to a range of 4.25% to 4.50%, following four-straight 0.75 point hikes. That was as good as confirmed by Chairman Jerome Powell in his remarks last Wednesday.

The emerging stakes for the Federal Open Market Committee's Dec. 13-14 meeting appear to be around any changes in the Summary of Economic Projections, or the so-called "dot plot."

Futures pricing currently implies a peak rate of just over 5% by the middle of next year, in line with Fed officials' latest projections from September. Nick Timiraos' reporting in the WSJ suggests the median dot next week could come in above that.

The news sent the yield on the 2-year U.S. Treasury note surging 0.11 percentage point, to 4.39% today, its largest move in over a month.

Stock investors didn't like that one bit. Higher interest rates and bond yields are a negative for stock valuation multiples, and a more protracted tightening campaign by the Fed risks pushing the economy into a recession.

Indexes suffered broad declines today, with the S&P 500 losing 1.8%. All eleven sectors of the index fell, and 471 of its components closed in the red. The Dow Jones Industrial Average slid 1.4% and the Nasdaq Composite sank 1.9%.

Worst off were the more economically sensitive sectors of the market: energy, financials, consumer discretionary, and materials all dropped at least 2%. Defensive utilities and health care were relative havens, each down less than 1%.

As investors set their gaze to 2023 and begin to reposition their portfolios, there are two huge macro questions that linger over all of it: how high and for how long will rates rise, and what will be the path of the economy?

For now, there's no shortage of conflicting indicators and data and tea leaves. Volatility and market-wide moves like today's are the result.