Wall Street rebounded after two falls in a row waiting for the Fed

The S&P 500 and the Nasdaq posted their worst weekly percentage decline since June on Friday, as markets fully priced in a rate hike of at least 75 basis points during the week, with fed funds futures showing a 21% chance of hitting a whopping 100 bps. increase.

The unexpectedly high inflation data for august of last week also raised bets on further rate hikes in the future, with the terminal rate for US fed funds now at 4.5%.

“Markets will look for direction until the Fed meeting, there won’t be much trading action until then,” said Christopher Grisanti, chief equity strategist at MAI Capital Management in Cleveland.

The S&P 500 has lost 19% so far this year due to concerns about a central bank-induced recession amid recent warnings about slowing demand from delivery company FedEx and an inverted US Treasury yield curve.

“I think a recession is very likely. The Fed sees a recession as unfortunate, but necessary to fight inflation,” Grisanti said.

For its part, the CBOE volatility indexalso known as the wall street fear indicator, rose to 27 points, slowly approaching a maximum of more than two months.

In that context, Goldman Sachs cut its 2023 US GDP forecast late on Friday, as he projects a more aggressive Fed and sees the unemployment rate rising more than he previously expected.

“We believe a 100 basis point increase would unnerve Wall Street…and increase the likelihood that the FOMC will eventually tighten too much and diminish the chance of a soft landing,” wrote Sam Stovall, chief investment strategist at CFRA. , in a note.

And the S&P index did not record new highs in 52 weeks and 18 new lows, while the nasdaq recorded 13 new highs and 178 new lows.