After recently hitting a new all-time high, the stock market has been taking a little bit of a breather most recently. The Standard & Poor’s 500 Index and the tech-heavy NASDAQ Composite both declined last week, booking back-to-back weekly losses. The S&P dipped .13% to 5,117. The NASDAQ performed the worst of the three major indexes, declining .7% to 15,973. The venerable Dow Jones Industrial Average edged less than .1% lower, finishing the week at 38,715 – its third consecutive down week.
The market has been cooling off a bit lately, primarily due to worries around inflation and when the Fed may begin cutting interest rates. Inflation data last week came in, on balance, worse-than-expected. The Producer Price Index rose .6 percent in February, compared to consensus estimates for a reading of .3 percent. The increased inflation concerns, among other things, raises the likelihood the Federal Reserve will begin cutting interest rates later rather than sooner. Wall Street of course, would prefer interest rate cuts sooner rather than later. After last week’s hot inflation data, investors have reined in their rate cut expectations.
The Federal Reserve is in the spotlight this week as they begin their two-day policy meeting on Tuesday and conclude Wednesday afternoon with a press conference by Chair Powell. Investors are wondering if inflation will cool enough to give the Fed room to cut interest rates at some point later this year. For starters, it is near certain the Fed will keep rates unchanged at this week’s meeting. According to the CME FedWatch Tool, the probability is 99% the central bank will make no changes to interest rates. What is not so certain, is whether the Fed will give any indication as to what it may do later in the year – and this will be front and center for the financial markets this week.
The markets are also widely expecting the Fed will leave rates unchanged in May, while the probability for a quarter-percentage-point rate cut in June is now at approximately 56%, also according to the CME FedWatch Tool. Any surprises during the press conference would likely create a spike in volatility this week. Remember though, long term investing involves going through many cycles, including Federal Reserve interest rate (raise/cut) cycles. Investing is a marathon, not a sprint!
As always, please contact us with any questions you may have or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC