News
Wall Street is placing its bets for a big Fed meeting and inflation reports
Published
11 months agoon
By
New YorkerThe majority opinion on Wall Street is that next week’s Federal Reserve policy meeting will bring no formal action, and a lot of stern talk about a commitment to bring down inflation further that leaves open the option to resume raising rates at the central bank’s July meeting. The betting is also that the latest inflation reading for the month of May that will be reported on Tuesday, just as the two-day Fed meeting gets underway, will show additional progress in the fight against higher prices. After all, there’s a 72% probability that the current 5%-5.25% fed funds rate will remain unchanged next week, according to 30-day fed funds futures pricing data as gauged by the CME Group, and only about a 28% chance rates will rise. By the July meeting, however, there’s only a 33% chance rates stay where they are. Those views have helped power a broader stock market rally on Wall Street this month, too. So far in June, the S & P 1500 regional bank index is higher by 10.2%, the Russell 2000 index of small-cap stocks has risen 6.6%, and groups of S & P 500 energy, consumer discretionary, industrials and materials stocks are all up between 5.3% and 6.2% — far more than the S & P 500’s 3% advance and a 1.5% gain in tech stocks. That’s the conventional wisdom anyway, but opinion is far from unanimous. “Our expectation is for CPI to continue to show signs of disinflation and for this to lead the Fed to ‘pause’ and leave rates unchanged on Wednesday,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina. If that happens, “expect a modest rally in risk markets (~1% in SPX), led more by the cyclical/small cap parts of the market which have lagged broader indices thus far in 2023.” Tuesday CPI may tell the tale But Wall Street’s sanguine take — reflected in the Cboe Volatility Index trading below 14 this week for the first time since Covid struck more than three years ago — relies on Tuesday’s consumer price index report matching or beating economists’ expectations. If it comes in hotter than expected, “we’d expect a sharp reaction across most markets,” Ladner said, with the S & P 500 possibly falling 2% to 3%, the Russell 2000 underperforming and the dollar strengthening. “In this case, the Fed does hike [Wednesday] and signals more to come. This is very at odds with how the market is thinking about the end of Fed tightening” and Tuesday and Wednesday’s “price action will be nasty.” Other investors sound skeptical of the latest stock market rally almost regardless of next week’s inflation data and Fed decision, and are throwing cold water on the notion that a new bull market has begun. “Even though the S & P 500 is up just over 20% from the October 2022 low, that does not mean the bear market is over yet,” said James Demmert, chief investment officer of Main Street Research, with roughly $2 billion in assets under management. “The bear markets of 2000 and 2008 both saw rallies in excess of 20%, which did not constitute the end of the bear market, as the market experienced further downside after those rallies.” Most stocks in most indexes are still firmly in downtrends, “which is the hallmark of a bear market. We need the majority of the stocks in the indexes to start establishing an uptrend in order to declare the beginning of a new bull market,” and that’s not likely until sometime in the second half, Demmert said. In fact, the combination of the narrow stock market rally in 2023, until this month at least, plus the low VIX reading, leads Demmert to expect a 10% stock market correction at some point. “The stock market at large is in overbought territory and investors are very complacent, which was the case prior to the past three major declines within this 18-month bear market. Investors should have some dry powder ready to go in the event of a near-term market correction,” Demmert said. The catalyst for such a selloff could come if the Fed raises rates next week. “Market sentiment is extremely confident – particularly after the passing of the debt ceiling…Typically, when investors are this complacent, volatility surges in the coming weeks,” he added. Bare minimum Wall Street expects at a bare minimum that the Fed statement next Wednesday, plus its quarterly Summary of Economic Projections plus Chairman Jerome Powell’s press conference afterward, will contain language “that officials are minded to hike interest rates again, probably at the following meeting in late-July,” said Paul Ashworth, chief North America economist at Capital Economics. “We suspect the recent resilience of employment and stickiness of core inflation will ensure that the Fed delivers that rate hike as planned next month,” Ashworth said. Although a July hike would serve as the last in this rate-raising cycle, Capital Economics now sees no rate cut until sometime in 2024. By contrast, a note from the fixed income sales desk at UBS argued that if the Fed raised rates next week and potentially skipped doing anything in July instead, policymakers would buy themselves 14 weeks until the September meeting to see how economic growth and inflation are panning out. Between the June and September meetings, the Fed would get three more inflation and three more payrolls reports. But if the Federal Open Market Committee skips the June meeting, it has only bought itself four weeks of numbers until the July meeting to observe how conditions evolve, UBS said. Week-ahead calendar Monday Earnings : Oracle Tuesday 8:30 a.m. Consumer price index (May) Fed policy meeting starts Wednesday 8:30 a.m. Producer price index (May) 2:00 p.m. Fed decision and statement 2:30 p.m. Fed chair Jerome Powell press conference Earnings : Lennar Thursday 8:30 a.m. Import/export prices (May) 8:30 a.m. Philadelphia Fed survey (June) 8:30 a.m. Empire Fed survey (June) 8:30 a.m. Retail sales (May) 9:15 p.m. Industrial production (May) Earnings : Kroger, Adobe, Jabil, John Wiley Friday 10:00 a.m. University of Michigan consumer sentiment and inflation expectations — CNBC’s Hakyung Kim, Michael Bloom and Jeff Cox contributed to this report.
Source: CNBC
Somerville man charged for allegedly assaulting women while posing as chiropractor
Salman Rushdie Weighs In on Death Threats Against Taylor Swift Critic
Biden to deliver commencement addresses at Morehouse College and West Point
Rumer Willis Celebrates Her "Mama Curves" With Postpartum Body Message
Valerie Bertinelli Reflects on Fans Support After Sharing ‘Life Updates’
How to Follow the WNBA Draft If You’re Newly Obsessed With Women’s Basketball
How to Clear a Stuffy Nose Fast—And Get Back to Breathing Normally
This Easy Addition to Your Egg Muffins Will Double Your Protein at Breakfast
Learning to Swim as an Adult Feels Like Coming Home
17 Comforting Recipes to Bring to a Friend Who Is Grieving
Somerville man charged for allegedly assaulting women while posing as chiropractor
Prince William and Kate Middleton Subtly Slam the Media With the Release of Prince Louis’ Birthday Photo
New England has 2 of the best destinations in the world for July travel, according to Travel + Leisure
The Asus Zephyrus G14 Has MacBook Style and Powerhouse Performance
Grasshopper, vegan Asian restaurant in Allston, is closing
Trending
-
News24 hours ago
Fighting erosion on Long Island with low-tech solutions inspired by nature. Here’s what’s being done.
-
Wellness23 hours ago
8 Yoga Poses That’ll Help You Poop (After Class, Hopefully)
-
News24 hours ago
The Accidental Speaker
-
News21 hours ago
Will Lionel Messi play on the turf at Gillette Stadium?
-
News21 hours ago
Columbia University has a long history of campus protests. Here’s a look back at some of them.
-
News11 hours ago
China closing in on laser-propelled fast, stealth subs – Asia Times
-
Tech16 hours ago
Breaking Down the Heroes and Villains of Deadpool & Wolverine’s New Trailer
-
News20 hours ago
Zach Roloff Says ‘It’s Time to Move On’ in Teaser for ‘Little People, Big World’ Season Finale