Breather?

U.S. stocks finished in negative territory on Friday as the S&P 500 booked its longest weekly winning streak since November of 2021, while Nasdaq completed its longest weekly charge since March of 2019.???

?? DJIA -0.32%, S&P 500 -0.37%, NASDAQ -0.68%?

Equity markets struggled for direction on Friday as investors weighed an impressive run in stocks versus the future path of monetary policy. For the week, all major indexes recorded impressive gains with the S&P 500 advancing for a fifth-straight week and the tech-heavy Nasdaq Composite rising for its eighth consecutive week. ?

It was a critical week for markets. On Wednesday, the U.S. Federal Reserve left rates unchanged to assess the impacts of its tighter monetary policy in anticipation of its July meeting. The central bank also signaled that it could raise rates two more times this year.

Investors also listened closely to commentary from Fed officials on Friday. Richmond Fed President Tom Barkin said that ongoing strength in consumer spending and the labor market continue to apply elevated pressure on inflation, offering justification to increase rates further. While a non-voting member on the Fed’s policy committee, Barkin said on Friday that he would support more hikes if the data warranted it.

Separately, Fed Governor Christopher Waller said that it is disturbing that core inflation is not moving, possibly requiring more tightening. Waller also noted that bank failures are likely to play a role in the Fed’s considerations for more hikes.

U.S. Treasury yields advanced on comments from Fed officials, implying more hikes could be on the way. The policy sensitive 2-year yield advanced on Friday for a second straight week. Meanwhile, fed funds futures traders increased their bets on the likelihood of a Fed hike at the July and September FOMC meetings.

On the economic data front, a preliminary read from the University of Michigan revealed that consumer sentiment improved in June to a four-month high. The consumer sentiment-index improved to 63.9 from May’s 59.2 print over the resolution of the U.S. debt-ceiling and easing inflation concerns. The survey also showed inflation expectations came down, Americans believe inflation will average about 3.3% in 2024. ???

Looking Ahead

Is this rally running on fumes? An impressive rally such as this certainly merits this question. In our view, the answer is yes!

As we mentioned this week, the narrative driving the market higher in recent sessions is that the Fed is bluffing on delivering more rate hikes this year. Unfortunately, the market is not listening to what the Fed is saying—there is more work to be done on inflation! Today’s Fedspeak implies as much, and as reality sets in, investors may be more inclined to take some risk off the table.

The Federal Reserve should be credited with having brought consumer inflation (CPI) to a midpoint, now resting between CPI’s June 2022 peak and the Fed’s 2% target. Judging by the Fed’s emphasis on core reads, which exclude volatile energy and food costs, this week’s Core CPI reading of 5.3% reflects a midpoint and implies a need for more work to be done.

The chart below offers a breakdown of recent inflation reports.?

Chart Courtesy of MarketDesk

We have maintained a strategically defensive posture in this environment and have been raising cash levels in accordance with our data driven approach. Moreover, we may also move to hedge our equity exposure in anticipation of a possible correction in the near term.

Perhaps reality will settle in as investors reflect on this recent Fed decision and the commentary that follows. We will be paying close attention.?

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?? Today’s Market Dashboard

Today’s Market Dashboard is a collection of important data covering markets, the economy, and news items we’ve monitored throughout the trading day.

Economic Data

University of Michigan Survey (Preliminary)

• 5-Year Inflation Expectations (Jun): 3.0% (Forecast: 3.1%, Prior: 3.1%)
• Consumer Expectations (Jun): 61.3 (Forecast: 56.5, Prior: 55.4)
• Consumer Sentiment (Jun): 63.9 (Forecast: 60.0, Prior: 59.2)
• Current Conditions (Jun): 68.0 (Forecast: 61.6, Prior: 64.9)???????????
• Inflation Expectations (Jun): 3.3% (Forecast: 4.4%, Prior: 4.2%)

Wires?

• [14:01 ET] US Treasury: China's failure to publish it's forex intervention make it an outlier among major economies and warrants close monitoring.
• [13:12 ET] ECB's President Lagarde: It is very likely that the ECB will continue to hike rates in July.
• [12:20 ET] Ukraine’s Pres. Zelensky: Any talks with Russia now means freezing the war.
• [11:35 ET] Kremlin: Russia ready for further arms control talks - Ifx.
• [10:39 ET] Putin: Russia has transferred nuclear weapons to Belarus.
• [09:24 ET] US Defense Secretary: The door is open to military dialogue with China, they can pick up the phone anytime.
• [09:04 ET] Fed's Waller: It is disturbing that core inflation is not moving, will probably require some more tightening.
• [09:00 ET] Fed's Barkin: I'm comfortable doing more if the data warrants it.
• [08:00 ET] US, Japan and the Philippines security advisers discussed security of South china and East China seas, and North Korea - statement…US, Japan, Philippines national security advisers also reiterated importance of peace and stability across the Taiwan strait - Statement.
• [07:27 ET] Kremlin Aide: Early Russian exit from the grain deal is unlikely - TASS.
• [07:00 ET] ECB's Wunsch: Core inflation holding around 5% could necessitate a rate hike in September and possibly beyond. (Euro Strengthened)
• [03:17 ET] Goldman Sachs lifts ECB rate outlook and sees hike to 4% in September.

Source: FinancialJuice

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THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INVESTMENT ADVICE.?

???SOURCES:?MarketWatch, Investing.com, CNBC, FinancialJuice