Stocks are expected to start today’s session modestly in the green. But as we have seen in recent days, the trend could shift quickly intraday. The big source of market volatility lately has been developments in the commodity complex, but the focus shifts now to next week’s decisive Fed meeting.
The expected rate hike at next week’s FOMC meeting, the first since 2006, will come as no surprise to anyone. Markets have come around to accepting this Fed reality, seeing the lift-off as a vote of confidence in the economic outlook. But even more importantly, investors have learned to see beyond lift-off and appreciate the Fed’s deliberate approach to future rate hikes.
The Fed Chairwoman will likely reiterate this monetary policy outlook in the press conference following the FOMC meeting next week, but the concrete evidence of the gradual policy path will emerge from the ‘dot plot’ – the committee members’ interest rate forecasts. The last ‘dot plot’ showed the committee making 25 basis-point hikes at every other meeting in 2016, with the ‘terminal’ level for Fed Funds not reaching 3.5% till 2019.
That’s the Fed outlook now – things could change with incoming economic data. And it is this uncertainty about the future course of monetary policy that will be driving market discourse in 2016 and beyond.
In corporate news, ConocoPhillips (COP) announced this morning a 25% cut to its capital expenditure plans for 2016, which comes after a similar capex cut announced by Chevron (CVX) Wednesday evening. Conoco, Chevron and other oil companies have been cutting back on their spending plans in response to the low oil prices, which is expected to eventually bring the commodity’s supply-demand dynamics into balance.
U.S. production has come down over the last few months, though the pace of declines has been slow relative to earlier expectations. The commodity’s recent leg down, following the recent inconclusive OPEC meeting, will likely accelerate such spending cuts in the coming days.
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