The Fed has never raised the target interest rate four times in a row by 75 basis points each time – until today. They still have to fight inflation.
Today, they have hurt retail stocks, consumers and falling real estate values.
Granny Retail was gaining strength and showing demonstrated leadership on Triple Play momentum and positive price action until the Fed announced its news. This will put retailers and consumers under pressure.
On Tuesday, retailers sold off strongly, along with the rest of the market. Granny Retail (XRT), or SPDR S&P Retail ETF, was down 4% and crossed the 50-day moving average.
I will assess the impact of the rise on consumer behavior by looking at Granny Retail (XRT), discuss high levels of consumer debt, and dig deeper into the components of the CPI.
Click the link to learn more about CPI, consumer spending and exploitable ETF levels.
There is uncertainty about the effectiveness of these rate hikes in reducing inflation since they are still far from 2%. The economic data is mixed.
Corporate earnings are holding up for now; however, given the uncertain economic environment, investors need to exercise risk governance.
Housing accounts for a third of the CPI, which was 6.6% last month. Rents will continue to rise while food and energy will remain high and are also important CPI weights.
Mortgage rates have gone from 3.5% to 7%, preventing some families from buying property.
People who cannot afford to buy have to live somewhere, which will continue to put pressure on rental prices.
Additionally, the US savings rate is also at 3%, the lowest in 15 years. Consumers are aggressively dipping into their savings, charging up their credit cards, racking up debt, and all while real income growth is stagnating.
Total US consumer credit outstanding reached record highs as shown below.
Total outstanding consumer credit in the United States from the 3rd quarter of 2006 to the 2nd quarter of 2022.
Homeowners also access home equity credit at variable loan rates.
There is little evidence to support the Fed’s claim that it is making major progress in fighting inflation.
ETF trading analysis and summary:
S&P 500 (SPY) 370 support and 377 resistance
Russell 2000 (IWM) 174 support and 181 resistance
Dow (DIA) 318 support and 324 resistance
Nasdaq (QQQ) 261 support and 269 resistance
KRE (Regional banks) 62 support and 65 resistance; same as before
SMH (Semiconductors) 182 support and 189 resistance
IYT (Transportation) 204 support and 210 resistance
IBB (Biotechnology) 127 support and 132 first resistance; same as before
XRT (retail) 61 support and 65 resistance; same as before
The author may have a position in the titles mentioned at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.