The odds of the Fed cutting rates in the first half of 2023 are next to none - but there's one 'bright spot' in the market that's supporting stock prices

• "The odds of Fed 'pivot' to lower rates in the first half of 2023 are now essentially zero," DataTrek said in a note.
• But it won't necessarily mean a headwind to stock prices, as markets are showing some more confidence in the Fed's policy action.

The odds of a Fed pivot through the first half of 2023 are next to none, but there's one "bright spot" in the market that supports stock prices, according to the research firm DataTrek.

Markets expect a 64% chance the policy rate will reach 3.75% to 4% by year-end, and a 41% chance that the rate will remain in that range by the end of the Fed's June 2023 meeting, Datatrek co-founder Nicholas Colas said in a note on Wednesday.

"The odds of Fed 'pivot' to lower rates in the first half of 2023 are now essentially zero," he said.

But it won't necessarily mean a headwind to stock prices. Colas pointed out the 10-year Treasury yield currently sits at 3.11%, below the high of 3.48% seen in June.

That's "the one bright spot" markets have going for today, he said, as it's a sign markets have gained some confidence the Fed will bring down inflation in the long run.

By contrast, the two-year yield has taken a different trajectory, spiking to 3.49% and climbing above its prior year-to-date high of 3.43% set in June.

"This supports equity prices, everything else equal, and (as mentioned) is an implicit market vote of confidence that the Fed will successfully contain inflation," Colas said.