US Investors divided over Stock market Before the Fed’s meet

The central bank’s decision on an interest rate hike will be keenly watched by professional and retail investors this week when the Federal Reserve meets on December 14.

This year many did not make the rate calls, and a survey by MLIV Pulse saw 37% of retail investors feel owning US sticks is the best bet ahead of the rate decision, while professional investors think it is better to sell them.

The divide between retail players and institutional investors was evident most of the year, with professionals taking a bearish approach.

Buy or Sell?

MAP Signals Chief Investment officer, Alec Young said retail investors might be right though professional caution is expected. The consumer price index data will be released Tuesday before the Fed’s rate decision. Both results drive the stock market in a big way.

The Federal Reserve is expected to increase interest rates by 50 basis points on December 14 as it continues its effort to tame inflation which has been relentless so far. 31 % of the respondents to the MLIV survey feel stocks will gain.

Bokeh Capital Partner founder and CEO Kim Forrest said in an interview that if the Fed keeps a slow stance on rate hikes, even for extended periods, people will learn to live with it. The stock prices will factor in and not get affected.

While retail investors search for the Santa Claus effect, professional investors analyze economic data.

Professional investors feel that apart from stock, highly rated corporate credit will also gain after the interest rate hike. The second pick among retail investors after stores is the treasury bonds which rallied sharply in the last week and pulled down the yield below 3.5% for a 10-year tenor.

According to Roger Hallam, Vanguard Group Inc., Global Head for rates, Treasury yields have settled to attractive levels and are in demand among investors.

The swap prices reveal that Fed will push the rates to a peak of 5% by mid-next year and then bring it down to 4.5% around 2023 end. Earlier in September, Fed Chair Jerome Powell indicated a peak rate of 4.6% and said it should be revised on the higher side in the December monetary policy meeting. Nearly two-thirds of investors feel there will be a mild recession next year in the US.

2023 – what is expected?

While many expect a mild recession, Citigroup’s strategy call was the most popular among the respondents, which projects the US dollar to stay strong in the short term and depreciate during the second half of 2023.

This agrees with the overwhelming majority of professional and retail investors’ views that if the Fed stops and pauses the rate hike in mid-2023, it will cut rates later.

Survey also revealed that the best tweet was from Hedge Fund Manager Michael Burry, who became famous after his prediction about the 2008 housing market crash. Cathy wood’s Ark investment ranked lowest in the survey as its flagship ETF slumped more than 60% in 2022.