No Hawkish Pause in Equities
It was one of the busiest weeks of the year in terms of economic data including CPI, PPI, a Fed Meeting, ECB Meeting, and a BOJ Meeting. By the end of the week, equities notched impressive gains and talk quickly turned to how high could we go from here. That said, it is a confusing time with central banks in the US and Japan keeping rates unchanged, Europe raising rates and China cutting them this week.
Week to date returns:
Exposure. Night. Day Buy and Hold
Large Cap 0.57% 1.64% 2.21%
Small Cap 0.50% -0.01% 0.50%
Monday – U.S. stocks climbed to kick off the week. The S&P 500 rose 0.9% to its highest level in more than a year, as investors anticipated key economic reports and the Federal Reserve’s interest-rate decision.?At the same time large caps were up, the Russell 2000 climbed 0.44%.?
Tuesday – Stocks rose pre-open on the latest reading of the Consumer Price Index for May. This key gauge measures the rate of inflation, or average change over time, in the prices of consumer goods. Consumer prices in May rose? 0.1% over last month and 4% over the prior year in May, a slowdown from April's 0.4% month-over-month increase and 4.9% annual gain. The S&P 500 edged up 0.7%, notching a new 2023 high and the Russell 2000 index of small-cap stocks was up 1.2%.?
Wednesday – The Federal Reserve announced interest rates and economic projections for the year. Markets bounced between gains and losses on the Fed decision to hold rates steady in the current range of 5.00 to 5.25 percent, and raising interest rate projections to a new peak of 5.6 percent. The officials’ projections for inflation and interest rates going forward suggest that the Fed is going to raise rates two more times by 25 basis points. The S&P 500 index posted a modest 0.08% gain for the day while the Russell 2000 declined 1.17%.
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Thursday - As investors continued to digest the Fed’s rate decision and forecast, stocks declined overnight but bounced back up and rallied during the day session. Economic data continued to show resilience of the U.S. economy. Retail spending rose 0.3% in May, compared with the prior month, while many economists expected a 0.2% decline. Spending rose across a variety of retailers from grocery stores to car dealerships and hardware stores.?The S&P 500 gained 1.2%, the Russell 2000 was up 0.8% and the VIX slid below 14.
Friday -? It was a volatile quadruple witching session plus an S&P index rebalance. Despite opening strong, stocks sold off as the day progressed.? There were more signs of economic resilience on Friday as the University of Michigan Consumer Sentiment Index reading showed consumers are slightly more confident about the state of the economy, suggesting Fed concerns ahead of the July meeting.
Next week - a holiday shortened week will include Powell testifying to congress on Wednesday along with other economic indicators such as housing starts (Tuesday) jobless claims (Thursday) and PMI (Friday).? With these relatively low impact indicators, all ears will be reaching out for some Fedspeak.?While the market seems to have discounted Powell’s hawkish pause, the parlor game of predicting the July meeting outcome will take center stage.