Barron’s-
“Powell will likely emphasize that rates will stay elevated for some time…despite the softer inflation data,” writes Citigroup economist Andrew Hollenhorst.
The Fed’s wish to tighten conditions could stop, at least temporarily, the stock market rally that has seen the Nasdaq gain 11% this month, its best January since 2001. The gains have left the S&P 500 looking expensive at 17.9 times earnings, up from 16.7 at the end of 2022, even as companies such as Microsoft  (ticker: MSFT) and Texas Instruments (TXN) continue to guide earnings lower. “Rich valuations point to some meaningful downside,” writes Benson Durham, Piper Sandler’s head of global asset allocation.
Valuations aside, the S&P 500 is now at a level it has had trouble surpassing. While it has breached its 200-day moving average in recent days, the index is still just under 4100, a level at which sellers have come in to knock it down several times.
Even if the Fed sounds moderately hawkish, the index could inch its way to that level, says John Kolovos, chief technical strategist at Macro Risk Advisors, but a more substantial rally is unlikely without more conclusive proof that the economy is heading for a soft landing.
Ultimately, that’s not a great setup for the market in advance of the FOMC meeting. “The risk/reward doesn’t seem great, heading into Fed day,” says Chris Harvey, chief U.S. equity strategist at Wells Fargo Securities. “Powell will have a continued focus on tighter for longer, and that’s not what the market wants to hear.”