CPI out, FOMC done, Where is US market heading?
Let The Cat Out Of The Bag.
On Wed, 12 Jun 2024 - the 2 highly anticipated events came and went.
(1) Core Consumer Price Index (CPI) YoY for May 2024 was released.
At 3.4%, it was (a) -0.1% lower than analysts’ forecasts (3.5%) and (b) -0.2% lower than April’s inflation data of 3.6%. (see above)
(2) The FOMC June 2024 meeting concluded with:
Interest rate remaining status quo (as Wall Street has expected).
More importantly, Fed chair Mr Powell “hawkish” confirmation of one interest cut (-0.25%) in 2024.
Policymakers also projected core inflation would end the year at 2.8%, an increase in projection from March.
Market Reaction.
Wall Street took the Fed guidance in stride, with the hawkish surprise merely toning down the celebratory mood after the CPI surprise. (see above)
By the time market closed on Wednesday:
DJIA: -0.09% (-35.21 to 38,712.21). The Dow gave up -0.09% in pull back correction.
S&P 500: +0.85% (+45.71 to 5,421.03). The S&P 500 notched a record close for the 28th time in 2024, rising +0.85% to close above the 5,400 level.
Nasdaq: +1.53% (+264.89 to 17,608.44). The tech index added to a record close from the prior day.
CME FedWatch (latest).
Above is CME FedWatch tool reaction - before and after Inflation report release & FOMC 2pm conference.
In my previous post I have shared — a 46.6% probability of a September interest rate cut has surfaced (click here ! to read).
This was after the 07 Jun 2024 — Non-Farm payroll report was out.
After CPI & FOMC, the probability of a September interest cut has risen by +10.01% to 56.7%. (see above)
Latest Dot Plot.
Yesterday also saw the Fed released the June 2024 Fed dot plot, that showed a projected 2.25-point interest rate cut by year end 2026. (see above)
This would reduce the fed funds target rate range from 5.25%-5.50% (current) to 3.00%-3.25%.
Coming back to 2024, the quarterly Summary of Economic Projections (SEP) known informally as the “dot plot”, saw:
8 officials penciled in 2 interest cuts in 2024.
7 officials had 1 interest cut for this year.
4 officials predicted no interest cut in Fed funds rate by end 2024.
Market heading where? My viewpoints.
As we head into Thu, 13 Jun 2024 - the 3 Composite Indexes futures is still showing mixed sentiments. Both S&P and Nasdaq are in the green zone while the Dow is still dipping into the red.
Producer Price index (May 2024). This is one of other inflation reports that will be released progressively before Q2 earnings season starts all over again.
For May 2024, forecast for headline PPI (MoM) is expected to show growth of +0.1%. This will be a drop from April’s 0.5%. [Strong]
Likewise, Core PPI (MoM) is expected to show growth of +0.3%, also a fall from April’s 0.5%. [Strong]
If actuals are aligned with forecast, it will be another booster to US market for this week.
Powell's 'Consequential' Concern
He has the most unenviable job in US; when it comes to implementing monetary policy / policies to help US, achieve (a) stable prices, (b) maximum employment, and (c) moderate long-term interest rates.
All the while his and his team’s effort are being thwart / undermined by the incessant US government spending like there is no tomorrow.
When the Central bank and the Central government are not executing complimenting policies, each group’s effort will cancel out the “effects” of the other party’s effort, resulting in a net zero gain for both groups.
I am revisiting Mr Powell’s concerns (about commencing interest cut too early), that I feel are extremely valid.
Here he explains:
The timing of the first rate cut of the cycle matters more than subsequent cuts.
When the Fed starts to loosen policy, it will show up in a significant loosening in financial market conditions, and it's a consequential decision for the US economy.
Interpretations of Mr Powell’s statement.
It could mean — A rate cut will stimulate business investments and borrowing that are on hold until the Fed acts, giving the economy new momentum.
Another meaning could be — The impact on the S&P 500.
Stock prices are a major contributor to financial conditions and have been the major reasons why current financial conditions have been easier than they were when the Fed started hiking in March 2022.
Yardeni Research, Inc, President, Ed Yardeni has similar foretell:
A Fed rate cut could lead to a melt-up of the AI-led stock rally.
That would be reminiscent of the 1990s stock boom that led the Fed to overtighten to slow the economy, amid asset-price inflation.
This is why the Fed’s strong conviction of a cooling inflation is necessary. The Fed needs to get it right !
Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks.
Do you think US market will continue to pan higher in the coming days and weeks ?
Do you think the Fed’s prudence is warranted ? I certainly do. Who wants a runaway inflation?
If you find this post interesting, give it wings! ️ Repost and share the insights ?
Do consider “Follow me” and get firsthand read of my daily new post. Thank you.
Modify on 2024-06-27 12:14
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Pls help to "Re-post". Tks! Rating is important (to me).
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!