Markets await the Fed’s meeting before making the next big move in the week ahead
Stocks could trade sideways as investors await the outcome of the Federal Reserve’s June meeting next Wednesday afternoon.
The Fed’s two-day meeting is the big event for markets in the week ahead. Although the central bank is not expected to take any action, it could make tweaks to its forecasts for interest rates and inflation that market pros say could be market moving.
Stocks meandered Friday and the S&P 500 finished at a new high, garnering a 0.4% gain for the week.
Fed Chairman Jerome Powell briefs journalists after the central bank issues its statement at 2 p.m. ET on Wednesday. He is expected to sound dovish and assure markets the Fed’s policy will remain easy .
Economic calendar
The markets this past week shrugged off a super hot consumer inflation reading for May, reported Thursday. Economists said the 5% jump in the consumer price index appears to be a temporary reaction to the reopening economy, supply chain disruptions and pent-up demand. But they also said it will take a few more reports to make sure it is not more persistent than the Fed currently expects.
The central bank has said it expects inflation to be high for a short period before falling back down, closer to 2%. The Fed will likely raise its forecast of 2.2% for this year, given the jump in recent inflation readings.
It also predicts that core inflation, as measured by the personal consumption expenditures price index, will be at 2% in 2022 and 2.1% in 2023.
Wells Fargo’s Schumacher said he is closely watching that inflation forecast, particularly for 2023. According to the Fed’s interest rate forecast, that is also the first time a group of central bank officials see the potential for an increase in the fed funds target rate.
So if inflation is higher in their view, the outlook for interest rates could be as well. That could move forward the forecast for the first rate hike, now forecast by a majority of the Fed in 2024.
Watch bonds
Stocks finished the past week mixed, with the Dow down 0.8% at 34,479, and the S&P 500 eking out a gain of 0.4% to finish the week at a record 4,247. The Nasdaq, boosted by tech, gained nearly 1.9% to reach 14,069. Meanwhile the small-cap Russell 2000 outperformed the other indices, increasing by 2.2% for the week and landing at 2,335.
REITs were the best performing major sector for the week, up 2%, followed by the health care sector’s 1.9% gain. Consumer discretionary stocks rose 1.6%. Tech climbed 1.4%, helped by a decline in interest rates.
But the financial sector lost 2.4% as interest rates fell, and it was the worst performing sector this week. Financials fell with other cyclicals, like materials, off 2% for the week and industrials off 1.7%.
The 10-year Treasury yield dipped under 1.43% on Friday. Yields move opposite price, so the move downward represented a buying surge.
The fall in the 10-year yield, which hit a high of 1.75% in late March, has been a positive for stocks. It also has drawn some stock investors to tech and growth sectors, which had fallen out of favor.
Finally, investors will also be watching headlines from President Joe Biden’s trip to the U.K. and Europe, where he is attending the G-7 and a meeting with NATO allies. He will hold a summit with Russian President Vladimir Putin on Wednesday in Geneva.
Reference: CNBC
Read More: https://www.cnbc.com/2021/06/
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