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Now What? Interest Rate Cuts Off the Table

Markets traded steadily yesterday afternoon and in after-hours trade after Fed Chair Powell indicated that interest rate cuts are not coming soon.

At a policy forum, Powell said that inflation fell but not fast enough. He said that recent data indicated solid growth and strength in the labor market. That bodes well for profitable companies with strong pricing power. Brands like Proctor & Gamble (PG) and Colgate-Palmolive (CL) should perform well. Retail discount stores like Costco Wholesale (COST) and Walmart (WMT) should also outperform. They help struggling consumers save money.

Mid-tier brands like Gap (GPS) and Target (TGT) may struggle. Inflation cuts the appeal for buying things that consumers do not immediately need.

No Interest Rate Range

Powell’s comments reflect those made by other central bank officials. Market pundits who predicted interest rate cuts since Dec. 2023 now have to walk back on that enthusiasm. The Fed will not change its monetary policy until inflation is closer to its 2.0% target. Markets sold off bank stocks yesterday. Goldman Sachs (GS), which posted strong global banking and fixed income-related revenue in Q1, is the exception.

Bank of America (BAC) and JPMorgan Chase (JPM) fell by 8.08% and 8.29% in the last week, respectively. Markets sold banks in anticipation that higher rates for longer would weaken the economic growth momentum. Morgan Stanley (MS) is the next stock to watch. Shares rebounded yesterday after the firm posted strong profits.