Crypto, Equities in for Volatile Week Ahead of Fed Decision, Jobs Data

key takeaways

Fed still expected to raise rates by 75 basis points
Stocks are going to move on the news, and crypto is likely to follow, analysts say

After a promising comeback in October, crypto and equities edged lower on the last trading day of the month as Monday kicked off a busy week for economic data.

The S&P 500 and Nasdaq indexes lost 0.6% and 1.1%, respectively, at the start of the trading session Monday. Ether and bitcoin also posted losses, both dropping about 1%.

“This week is full of potentially important events and it’s not an exaggeration to say that the events of this week could result in another 5% rally in the S&P 500, or a give back of a lot of the gains of the past two weeks,” Tom Essaye, founder of Sevens Report Research, said.

Big Tech saw crypto-like losses at the end of last week following a series of disappointing quarterly earnings reports, but markets overall remained steady.

Amazon lost more than 18% during the after-hours session Thursday after the company missed on revenue. Meta closed Thursday nearly 25% lower, ending the trading session at its lowest price since 2016, after posting a 4% year-over-year revenue decline. Meta is now down more than 72% year to date while Amazon has lost 40%.

Meta was trading nearly 5% lower at time of publication Monday while Amazon lost about 2%.

Even so, the Nasdaq Composite is up about 3% for the month of October, a reprieve from an otherwise disappointing year. The tech-heavy index is down more than 30% since the start of 2022.

Similarly, the S&P 500 is seeing about 8% returns for the month, but it is still down more than 19% year to date. But Tuesday’s jobs data release and Wednesday’s Federal Reserve interest rate decision are setting up markets for a tumultuous November.

“The rebound itself, while impressive, was not that noteworthy,” Jim Paulsen, chief investment strategist of The Leuthold Group, said of equities’ mid-October comeback. “Bear markets often have sharp upswings, which ultimately fail.”

A predicted 75 bps

Federal Open Market Committee members entered their blackout period on Oct. 22, but prior to the quiet stretch leading up to Tuesday’s meeting, several members expressed resolve to get a handle on inflation once and for all.

Chicago Fed President Charles Evans and Fed Vice Chair Lael Brainard, as well as Cleveland Fed President Loretta Mester and others, insisted in recent weeks that the central bank will not shy away from higher rates to combat inflation.

On Monday, futures markets were predicting an 86% chance of a 75 basis point rate hike on Wednesday, according to data from CME Group.

“It’s important to temper our enthusiasm and realize that, at these levels, the S&P 500 is now stretching the bounds of justification given the actual market reality,” Essaye said.

“First, dovish hikes are still hikes. Yes, the Fed may well decrease the intensity of its rate hikes starting in December, but it’s still the terminal rate that really matters, and unless that drops towards (and ideally below) 4.50%, there’s no real dovish shift from the Fed.”

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