Here’s what investors are expecting for the stock market after Wednesday’s Fed meeting | Wilnesh News
Wednesday will be a big day for investors, with new inflation data due in the morning and a summary of the Federal Reserve’s new economic forecasts in the afternoon. But as far as Wall Street is concerned, the Fed incident is likely to be at least largely temporary. Overall, market watchers expect investors have already priced in how the Fed may raise interest rates. Although the central bank last projected three interest rate cuts in 2024 in March, the latest batch of mixed economic signals has investors lowering expectations to policymakers only cutting interest rates twice, and possibly even one. In fact, based on trading in the 30-day federal funds futures contract, the CME Group’s FedWatch tool shows that the market last priced in about two rate cuts this year, with the first in September. (Note that these forecasts have been particularly volatile in recent days). As long as this week’s Fed meeting sticks to the consensus view, many observers expect stocks to breathe a sigh of relief. The S&P 500 continues to hit new highs, most recently on Monday, shrugging off any signs of economic weakness or sticky inflation. By 2024, this number will rise by more than 12%. “But I suspect all of this will come and go without causing much market disruption.” Dave Sekera, chief U.S. market strategist at Morningstar, put it more bluntly: “I suspect it will It could actually be a pretty boring, relatively uneventful meeting. ” The possibility of surprises Of course, there is still a chance that the Fed meeting will surprise investors. Just one rate cut outlined in the Fed’s quarterly summary of economic forecasts could be more painful than two, a decision that B. Riley’s Hogan called a “near-term market negative.” Meanwhile, a tougher stance from Federal Reserve Chairman Jerome Powell at a news conference after Wednesday’s meeting could also send the stock market into chaos. With some recent labor data showing signs of weakness, Powell will have to explain how the central bank plans to continue fighting inflation. The Fed first began raising interest rates from near zero in March 2022, but has not moved rates in one direction since July 2023. Ryan Nick said the Fed hopes the unemployment rate will rise more than the Fed expects. “This will put more focus on the press conference because Powell will have to explain how the Fed failed to meet both of its mandates and which mandate it will begin to support if things continue to move in this direction.” The Fed’s ” “Dual Mission” refers to the 1977 amendment to the Federal Reserve’s statutory charter to promote maximum employment and price stability. “So, I think it’s set up to deal with volatility,” Nick added. To be sure, the strategist, who sees stocks moving in the 1% to 2% range, said he doesn’t expect a move of more than 2% in either direction. He noted that the Fed chairman maintained a surprisingly dovish tone at the recent meeting, which pushed stocks higher. Nick said: “I would be surprised if the Fed released any shocking information that caused the market to move more than 2% in either direction.” Similarly, Hogan agreed that the Fed chairman will try to deliver another “moderate approach” message, reaffirming the central bank’s data-driven approach to achieving its inflation target. Nick specifically said that weak inflation data early tomorrow may reduce pressure on Powell to be too hawkish on interest rates. The U.S. Bureau of Labor Statistics is scheduled to release the May consumer price index at 8:30 a.m. ET on Wednesday, while the Federal Reserve meeting will end at 2:00 p.m. and Powell’s press conference will begin half an hour later. Long-term concerns For some investors, the bigger concern is the long-term impact on stocks. Morningstar’s Sekera expects stocks to be fairly valued now, with potential downside risks as investors head into the second half of the year. These observers are particularly concerned that large technology stocks may become vulnerable after their recent outperformance, and say better opportunities may be found in the broader market. Take NVIDIA as an example. Last week its market value exceeded US$3 trillion for the first time. The Macro Institute’s Nick expects stocks to fall 20% to 30% after peaking, though he said a correction may not occur until next year. Jeff Klingelhofer, co-head of investing at Thornburg Investment Management, worries that the impact of longer-term higher interest rates will eventually ripple through the real economy, not just Wall Street, as consumer spending Signs of weakness are worrying. He predicts a possible 10% correction this year and advises investors to avoid overly nervous large-cap stocks and instead turn to international stocks. “I think the market will be forced to make a reckoning… underlying growth is slowing,” Klingelhoff said.
