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As expected, the Federal Reserve (Fed) held interest rates steady during last week’s meeting but did deliver an unexpected shock to the markets through its interest rate projections: the Fed dot plot.1 Even though the expectation for “higher-for-longer’’ interest rates has been a common theme among Fed officials recently, the elevated interest rate projections weighed heavily on fixed income and equity market valuations.
The 10-year Treasury note touched another post-Global Financial Crisis high of 4.5% while the recent selloff in equities gained momentum.2 Equity market price earnings above the 20 level will be difficult to sustain if bond yields remain near current levels.3
This week’s economic data is relatively light, highlighted by new home sales on Tuesday and monthly personal consumption expenditures (PCE) inflation data on Thursday.4 Our Chart of the Week, published last Thursday, does a great job explaining the surprising dynamic at play between interest rates and new home sales this year.
Sources:
1CNBC – Fed declines to hike, but points to rates staying higher for longer; 9/20/23
2CNBC – Dow tumbles more than 300 points to notch third day of losses amid fears of higher rates, government shutdown; 9/21/23
3MacroTrends – S&P 500 PE Ratio – 90 Year Historical Chart; as of Aug 2023
4MarketWatch – U.S. Economic Calendar; as of 9/25/23
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