Fed rate decision, May inflation key tests for stock market next week
The next rate decision from the Federal Reserve coupled with May inflation data, both on Wednesday, will play key roles in how stocks perform next week — quite probably lending added volatility to an already jittery market. Stocks look poised to cap off the first winning week of June on a positive note, with Nvidia powering the market to new highs to briefly break above a $3 trillion market capitalization and temporarily unseat Apple as the second most valuable company after Microsoft. Meanwhile, GameStop first rallied and then pulled back in continued wild fluctuations for the meme stock. Investors continued to hunt for signs of a cooldown in the labor market in the hopes that a slowing economy might encourage the Fed to cut rates, but a hotter-than-expected nonfarm payrolls report for May dashed hopes for any easing in the near future. The payrolls report released Friday showed the economy add 272,000 jobs in May, blowing past economists’ consensus forecast of a 190,000 increase, according to a Dow Jones survey. May’s increase was also far above April’s 175,000 new jobs. T he unemployment rate ticked up to 4% for the first time since 2022 as more workers joined the labor force. The results are likely to complicate Wednesday’s Federal Reserve policy meeting and, critically, further push out the timeline for cuts. “Today’s data puts into question that if we get numbers that are just in line with expectations – no clear path – or a surprise, that we might just get another cautious statement” from central bank governors, said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group. The Fed’s rate decision All eyes are on the Fed next week and its rate decision that’s set to come down at 2 p.m. Wednesday. The pressure is on Federal Open Market Committee members after the European Central Bank cut interest rates this week for the first time since 2019 despite persistent inflationary pressures in the European Union. More critical than the rate decision itself next week will be the Fed’s updated projections on interest rates, and the timing of cuts. That’s likely to drive the market in the week ahead, according to Wells Fargo Investment Institute’s senior global market strategist Scott Wren. In March, the last time the Fed released what’s known updated projections, policymakers called for at least three cuts in 2024. But investors have tempered expectations since then amid a spate of stubborn inflation data. “I want to see that the Fed doesn’t say anything that suggests that they’ve shut the door on a rate cut in July and that it’s still a possibility,” said Wilmington Trust’s chief investment officer Tony Roth, noting that the market will get two more readings on the personal consumption expenditure price index — the Fed’s preferred inflation gauge — ahead of the July meeting. Trading in fed funds futures are now pricing in a 54% chance of a cut in September and nearly 90% odds of easing in December, according to the CME Group’s FedWatch too l. Any inkling next week that a rate cut could come earlier – such as September – will prove a dovish signal to the market, said Envestnet’s Dana D’Auria. Investors want to hear language from the Fed next week that suggests it’s open to start cutting rates in September and that inflation has not proven intractable, forcing a delay in easier policy until the end of 2024, said D’Auria, the firm’s co-chief investment officer. May CPI report Sticky inflation data has fueled months-long concern that the Fed will keep fed funds at their current 5.25% to 5.50% pending additional evidence that inflation is in hand, and that any easing in policy will come much later than previously expected. That makes May’s consumer price index report due out before the bell Wednesday another key focal point for investors. Economists polled by Dow Jones are bracing for the consumer price index to rise 3.4% year over year and 0.1% on a monthly basis. Core CPI, which excludes food and energy, is expected to also gain 3.4% year over year, but 0.3% on the month. “The Fed has said it needs to be convinced that both inflation and labor-market data are cooling,” Wells Fargo’s Wren said in a note to clients. “That means more than a month or two of lower inflation readings. The problem is the latest data show only tentative and early signs of such a move.” Apple’s developer conference Iinvestor attention will also keep a close watch on Apple’s Worldwide Developers Conference Monday in Cupertino, California, where the iPhone maker is widely expected to announce its latest software updates. The heat is on Apple to reveal an AI agenda as investors continue to favor companies with a clear-cut plan. Apple’s AI monetization strategy has been shrouded in mystery compared to competitors, fueling some investor fear that Apple is falling behind. “That’s an event that’s going to have pretty important implications for the tech sector broadly,” said Gabelli Funds’ John Belton. The portfolio manager expects Apple to announce new AI integration for its iPhone model, and potentially test out some new features built into apps such as Notes and Safari. Apple may also hint at plans to develop its own data center chips, he added. Week ahead calendar Monday, June 10 1 p.m.: 3-year Treasury note auction Tuesday, June 11 6 a.m.: NFIB Small Business Index (May) 1 p.m.: 10-year Treasury note auction Earnings: Casey’s General Stores Wednesday, June 12 7 a.m.: Weekly mortgage applications (week ended June 7) 8:30 a.m.: Consumer price index (May) 2 p.m.: FOMC policy announcement 2:30 p.m.: Fed Chair Jerome Powell holds news conference Earnings: Broadcom, Dave & Buster’s Thursday, June 13 8:30 a.m.: Weekly jobless claims (week ended June 8) 8:30 a.m.: Producer price index (May) 1 p.m.: 30-year Treasury bond auction Earnings: Adobe, Signet Jewelers, John Wiley Friday, June 14 8:30 a.m.: Import/export prices (May) 10 a.m.: University of Michigan consumer sentiment index (preliminary, June)
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