Vinod Bhat's Market Pulse - Mar 21, 2023
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Fed’s commentary and guidance on future rate trajectory on Mar 22nd will be the key catalyst for markets. Fed fund futures are now pricing in a 70% chance of a 25% rate hike with a peak of 4.8%, followed by a steady series of cuts into the end of the year.
Would the Fed take the view that the stress in the banking system remains the most immediate concern for now and take a pause in the inflation fight? Markets seem to be reflecting that view.
Financials are the worst performing equity sector in the US since March 8 with the S&P 500 Banks index down 17%. At the same time, the Communication Services and IT sectors have rallied over this period as they have benefitted from the sharp drop in bond yields due to the re-pricing of the Fed’s interest rate trajectory.
Nifty 1-yr forward P/E is currently at 17.3x. Since 2016, the Nifty's P/E has shown a high tendency of bottoming out when trading at 16-17 times forward earnings. Next 12-month returns of Nifty have higher probability of double digits when Nifty trades at 15-16 times forward earnings.