Still, Kelly is cautiously optimistic that 2024 and beyond will be better years for earnings, and therefore stocks. “If there is a recession, profits will likely fall sharply.” “Even if the economy avoids recession, 2023 will be a difficult year for corporate profits,” said David Kelly, chief global strategist with JPMorgan Asset Management, in a report Monday. But if the economy winds up having “no landing” - meaning that growth won’t really cool off at all - instead of a hard or soft one, the rate hikes will take their toll. The hope is that the Fed won’t create a recession by raising rates too aggressively. “Inflation will eventually subside, but there is the uncertainty of not knowing when the Fed will stop,” Norris said. Leonardo Munoz/VIEWpress/Corbis/Getty ImagesĮconomists' crystal balls are growing cloudier. Prices are displayed in a grocery store on Februin New York City. He speculated that if inflation doesn’t cool off soon, the Fed may need to keep raising rates all the way up to 6%. “There is absolutely no reason for the stock market to surge from this point,” said John Norris, managing director with Oakworth Capital, adding that investors have no idea when the Fed is finally going to pause. It’s harder to justify more expensive valuations for the market in an environment where higher interest rates will likely eat into profits. Stocks are unlikely to keep climbing if the Fed continues to tighten. But inflation worries are once again so prevalent that investors are now even factoring in odds of about 25% that the Fed will hike rates by a half percentage point next month instead of just another quarter-point.īracing for higher rates and slower earnings growthĪs investors come to grips with this, reality is settling in. Traders are now betting that there’s a 100% probability that the Fed will raise rates again at its next meeting on March 21-22.Ī month ago, the market had priced in a 15% chance that the central bank might pause and leave rates at a level of 4.5% to 4.75%. Inflation surprisingly rose in January, according to the Fed's preferred gauge Liu Guanguan/China News Service/VCG/Getty Images FOSTER CITY, CA - JANUARY 12: Packages of beef are displayed for sale at a supermarket on Januin Foster City, California, United States.
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