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The Fed is likely to discuss when it will halt hikes next week, the Journal report said

Federal Reserve officials next week are all but certain to approve another slowdown in interest rate hikes, while also discussing when to halt those hikes altogether, according to a Wall Street Journal report.

The rate-setting Federal Open Market Committee is scheduled to meet Jan. 31-Feb. 1, with the market pricing in a nearly 100% chance of a quarter-point increase in the central bank’s benchmark rate. Most notably, Fed Governor Christopher Waller said on Friday that he sees a 0.25 percentage point hike as the preferred move for the upcoming meeting.

However, Waller said he did not think the Fed was done tightening yet, and several other central bankers in recent days have backed the idea.

The Journal report, which cites public statements from policymakers, said the slowdown in the pace of increases could provide an opportunity to gauge what impact past increases are having on the economy. The series of rate hikes that began in March 2022 resulted in an increase of 4.25 percentage points.

Market prices currently point to a quarter-point increase over the next two meetings, a no-action period, and then a half-point decrease by the end of 2023, according to CME Group data.

However, several officials, including Gov. Lael Brainard and New York Fed President John Williams, used the phrase “stay the course” to describe the policy path ahead.

— Jeff Cox

Nasdaq accelerates back-to-back gains as tech stocks rise

The Nasdaq Composite rallied more than 2.2% in midday trading on Monday, boosted by shares of beaten-down tech stocks.

The move propelled the technology index to a consecutive day of gains of more than 2%. The index ended 2.66% higher on Friday.

Rising semiconductor stocks helped lift the index. Tesla and Apple, meanwhile, rose 7.7% and 3.2%, respectively, as the reopening of China raised hopes of a boost to their business. Western Digital and Advanced Micro Devices increased by about 8% each, while Qualcomm and Nvidia jumped by about 7%.

Information technology was the best-performing S&P 500 sector, rising 2.7%. This was partly due to gains in the chip sector. Communications services added 1.9%, boosted by like-for-like Netflix, Meta Platforms, Alphabet and Match group.

— Samantha Subin

El-Erian says Fed should hike 50 basis points, calls smaller increase ‘mistake’

Inflation has shifted from the commodity to the service sector, says Mohamed El-Erian

Rising inflation may be largely in the past, but moving to a 25-basis-point hike at the Federal Reserve’s next policy meeting is a “mistake,” says Allianz chief economic adviser Mohamed El-Erian.

“I’m in a very, very small camp that thinks they shouldn’t go down to 25 basis points, they should go down to 50,” he told CNBC’s “Squawk Box” on Monday. “They should take advantage of this growth window that we’re in, they should take advantage of the market and they should try to tighten financial conditions because I think we still have an inflation problem.”

Inflation, he said, has shifted from goods to the services sector, but could very well rise again if energy prices rise as China reopens.

El-Erian expects inflation to plateau at around 4%. This, he said, will put the Fed in a difficult position as to whether they should continue to destroy the economy to reach 2% or promise that level in the future and hope that investors will tolerate a stable 3% to 4% in the near term. .

“That’s probably the best outcome,” he said of the latter.

— Samantha Subin

An earnings recession is imminent, according to Morgan Stanley

An earnings recession is imminent this year, according to Morgan Stanley equity strategist Michael Wilson.

“Our view has not changed as we expect the US earnings trajectory to disappoint both consensus expectations and current estimates,” he said in a note to clients on Sunday.

Some positive developments have taken place in recent weeks — such as the steady reopening of China and falling natural gas prices in Europe — and have contributed to some investors taking a more optimistic view of the market’s outlook.

However, Wilson advises investors to remain bullish on equities, citing price action as the main driver of this year’s growth.

“This year’s rally was led by low-quality and very short stocks,” he said. “We also witnessed a strong move in cyclical stocks against defensives.”

Wilson based his forecasts on margin disappointment, and he believes the reason for that is growing. Many industries are already dealing with slowing revenues, as well as increased inventory, less productive workforces.

“It’s simply a matter of time and size,” Wilson said. “We advise investors to stay focused on the fundamentals and ignore the false signals and misleading reflections in this bear market hall of mirrors.”

— Hakjung Kim

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