Markets sink while waiting for the Fed to speak tomorrow

Dow retreated 313 (above session lows), decliners over advancers about 5-1 & NAZ pulled back 109.  The MLP index stayed in the 217s & the REIT index dropped 9+ to the 390.  Junk bond funds continued to be out of favor & Treasuries continued to see selling, raising yields ahead of the Fed meeting announcement tomorrow.  Oil slid back 1+ to the 84s & gold was off 5 to 1672 (more on both below).

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Gap (GPS) is eliminating about 500 corp, moving to reduce expenses at the apparel retailer amid declining sales & profits.  The jobs are mainly at its main offices in San Francisco & New York as well as in Asia.  The company is laying off staff & eliminating positions that are currently open across a range of departments. "We’ve let our operating costs increase at a faster rate than our sales, and in turn our profitability," Bob Martin, exec chair & interim CEO, wrote in a memo to employees.  The company has endured years of slumping sales at the flagship Gap brand &, more recently, problems at the Old Navy chain, which accounts for more than ½ of total revenue.  Sales at Old Navy took a hit this year after an attempt to make inclusive clothing sizes backfired, leaving it with surplus goods.  The company is searching for a permanent chief executive after the resignation of Sonia Syngal in Jul.  Last week, the company said it was ending a partnership with Kanye West to make clothes under the Yeezy Gap label, after West accused the company of breaching the 10-year agreement.  In Aug, Gap finance chief Katrina O'Connell told analysts the company would be looking for ways to reduce spending & overhead, including a pause on planned hiring.  GPS had about 8700 employees in headquarters locations.  In total, the company had 97K employees, most of whom were hourly workers in its stores.  The stock fell 31¢.
If you would like to learn more about GPS, click on this link:
club.ino.com/trend/analysis/stock/GPS?a_aid=CD3289&a_bid=6ae5b6f7

Gap is cutting 500 corporate jobs

It's not what the Federal Reserve does, but what it says it could do in the future that will be most crucial  tomorrow.  The Fed is expected to fire off another ¾ point rate hike — its 3rd in a row.  It will also release quarterly forecasts for inflation, the economy & the future path of interest rates.  The Fed's projections are always important, but this time they are even more so because investors have been trying to game how high it will raise interest rates & how much officials expect their actions could affect the economy.  Fed Chair Jerome Powell is expected to emphasize the central bank will do what it takes to fight inflation & it is unlikely to reverse its rate hikes anytime soon.  The new forecasts also come as the central bank moves into a rate hiking zone that some economists expect will be more restrictive & could more seriously impact the economy.  The Fed has been lifting rates for 7 months now & will now be moving its target rate above what had been considered the neutral zone when inflation was low.  Neutral is considered to be the interest rate level where Fed policy is no longer easy but not yet restrictive.  The Fed has considered 2.5% to be neutral & if it raises by 3-qtrs of a point, the fed funds rate will be 3-3.25%.  Expectations for Fed tightening increased dramatically in the past week, after a surprisingly hot August consumer price index report.  Fed funds futures on Mon were pricing in a terminal rate of 4.5% by Apr, up from just around 4% before the inflation report was released last Tues.  The CPI rose 0.1% in Aug, while the forecast expected a decline.  Expectations for Fed tightening increased dramatically in the past week, after a surprisingly hot Aug consumer price index report.

Fed expected to raise by three-quarters point, but its message could matter more

Stock traders look to be embracing the idea that the Federal Reserve will hike rates into restrictive territory & stay at that high rate for a substantial period.  That is, the Fed will hike & hold, not hike & cut as many in the markets had been forecasting.  The Sep CNBC Fed Survey shows the average respondent believes the Fed will hike 0.75 percentage point (75BP), tomorrow, bringing the federal funds rate to 3.1%.  The central bank is forecast to keep hiking until the rate peaks in Mar 2023 at 4.26%.  The new peak rate forecast represents a 43 basis point increase from the Jul survey.  Respondents forecast the Fed will remain at that peak rate for nearly 11 months, reflecting a range of view of those who say the Fed will maintain its peak rate for as little as 3 months to those who say it will hold there for up to 2 years.   At the same time, there is growing concern among the 35 respondents that the Fed will overdo its tightening & cause a recession.  In the US, 57% believe the Fed will tighten too much & cause a recession, while just 26% say it will tighten just enough & cause only a modest slowdown, a 5-point drop from Jul.  The bigger problem, however, is that most respondents do not see the Fed succeeding at hitting its 2% inflation target for several years.  Respondents forecast the consumer price index will end the year at a 6.8% year-over-year rate, down from the current level of 8.3%, & fall further to 3.6% in 2023.  Only in 2024 does a majority forecast the Fed will hit its target.

Fed now expected to keep raising rates then hold them there, CNBC survey shows

 Gold prices declined, falling back to their lowest finish in more than 2 years, as investors wait for the Federal Reserve to raise interest rates & deliver updated economic projections tomorrow.  Gold futures for Dec were off $7 (0.4%) to settle at $1671 per ounce.  Prices for the most-active contract ended below Thurs's $1677 finish to mark another settlement at the lowest since Apr 2020.  It has been a rough month for the precious metal due to a stronger $ & rising Treasury yields.  After tumbling below the $1700 psychological level last week, it feels like bears have won the battle in Sep.  However, the war still rages with various fundamental forces influencing gold prices.  For now, gold remains trapped within a short-term range, below key resistance.

Gold prices fall back to lowest finish since April 2020 as investors await Fed decision

Oil futures declined, with US benchmark prices settling at their lowest in almost 2 weeks.  A strong $, rising yields & concerns over demand as the global economy slows are weighing on crude oil prices again.  Markets are gearing up for multiple rate hikes this week from the Federal Reserve, Bank of England & Swiss National Bank.  Fears over tight oil supplies aren't having the supportive effect on prices that would normally be expected.  However it also means they probably won't dip too far either.  Oct WTI crude fell $1.28 (1.5%) to settle at $84.45 barrel on the contract's expiration day.  That was the lowest finish for a front-month contract since Sep 8.  The Nov contract, which became the front month at the end of the session, settled at $83.94, down $1.42 (1.7%).

U.S. oil futures settle at their lowest in nearly 2 weeks

Tomorrow will be an eventful day for stocks & bonds.  Until Powell speaks after the PM meeting, investors will have to keep biting their nails.  They are hoping to hear kind words.  For what it's worth, there was buying in the last 2 hours.

Dow Jones Industrials