The sudden emergence of a banking crisis and the forceful moves to quell it have made the upcoming Fed meeting difficult to predict
A hectic week for the stock market ended reasonably well, except for a handful of banks. What promises to be a frantic weekend of financial sector news could well set the tone for next week, although Jerome Powell and his Open Market Committee posse will steal the limelight with Wednesday's rate policy announcement.
The sudden emergence of a banking crisis and the forceful moves to quell it have made the upcoming Fed meeting difficult to predict. Fed watchers on Wall Street contend that Wednesday's Fed decision to hike or not may depend on the level of the S&P 500 going into the meeting. If markets are calm, the Fed may feel safe in hiking its key rate a quarter point to a range of 4.75% to 5%. If markets lose composure, the Fed may not risk a hike. The key question is whether steps taken to stem the crisis — both the government moves and the big-bank rescue of First Republic Bank — are sufficient to restore confidence in small and midsize banks. Early Friday, markets priced in 73% odds of a rate hike.
As of Friday morning, markets were pricing in 73% odds of a rate hike and 27% odds that the Fed will stand pat.
The outlook for interest-rate moves beyond this week is even more uncertain. At the moment, markets are betting that the Fed's key rate will fall to a range of 4% to 4.25% by year-end. However, the Fed's new quarterly projections issued next week might now show rate cuts. Even if the Fed pauses, it's still conceivable that policymakers could pencil in another rate hike under the assumption that the dicey climate for banks stabilizes.
Outside of the Fed rate decision, the coming week's economic calendar is light. Jobless claims for the week through March 18, out Thursday, will be closely watched for any sign of an uptick in layoffs after the latest reports showed claims surprisingly fell to 192,000. S&P Global preliminary readings on manufacturing and service-sector activity for March are due out Friday.
A tumultuous week for financial stocks helped the Nasdaq pull away from the S&P 500 and Dow industrials but still left the market's status "in correction." The Nasdaq has a five-day rally attempt underway. But any new uptrend that emerges isn't likely to amount to much until the S&P 500 manages to overcome resistance at its 200-day moving average.
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