S&P 500 Potentially Readies to Alter Course as U.S. Rate Cut Expections Change

It was a good week for Wall Street’s bulls seeking to navigate their way through the random onset of new information in the markets. The index rose 1.6% above where it closed the previous week, closing at 5,431.60 on Friday, 14 June 2024. The index even set new record highs during the week, with 13 June 2024′s 5,433.74 closing value now representing the S&P 500′s highest close ever.

As for the market moving news the week held, a benign inflation report on Wednesday, 12 June 2024 was perhaps the most important story for investors in the U.S. stock market. After the report, expectations for when the Federal Reserve might begin cutting interest rates changed. The CME Group’s FedWatch Tool now forecasts the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% only until 18 September (2024-Q3), 12 weeks earlier than what the tool projected a week ago. The tool anticipates the Fed will start a series of 0.25% rate cuts on that date, which will occur at 6-12 week intervals well into 2025 based upon how expectations changed in the past week.

The latest update of the alternative futures chart shows the trajectory of the S&P 500 running at the low end of the range that would be expected for investors focusing on 2024-Q4 in setting current day stock prices.

That relative position suggests a real potential upside for the S&P 500. Should investors reset their forward-looking focus toward 2024-Q3 to coincide with the change in the FedWatch Tool’s projected timing for when the Fed will start cutting interest rates in the U.S., the stage would be set for the index to jump to new record highs.

But will it work out that way? As we’ve seen in the past week, expectations can change significantly with little advance warning thanks to the random onset of new information. Much like the market-moving headlines of the week that was.

Monday, 10 June 2024

• Signs and portents for the U.S. economy:

• The ‘good’ and ‘bad’ news inside the US jobs report
• Oil prices up 3% to one-week high on hopes of higher summer fuel demand

Fed minions thinking about what to do for next actions:

• Inflation, Fed meeting to give clues for U.S. market direction
• Fed’s new economic projections may come with a dose of maybe, maybe not
• Major brokerages expect Fed to cut rates from September or beyond

Bigger trouble developing in China:

• China’s home de-stocking push to bring developers little cheer

BOJ minions get less bad news:

• Japan’s Q1 GDP fell less than first reported on revised capex
• Japan’s service sector mood hits nearly 2-year low in May

ECB minions thinking they might not want to commit to rate cuts:

• ECB could wait several meetings between rate cuts, Lagarde says
• ECB’s Holzmann voices caution on rates outlook

Tuesday, 11 June 2024

• Signs and portents for the U.S. economy:

• Shrinking Fed rate cut expectations to keep US Treasury yields elevated
• Oil settles higher on forecasts for strong demand

Market expectations for what Fed minions will do at their June 2024 meeting:

• Fed expected to hold rates steady, project fewer cuts in 2024
• Fed meeting and US inflation data in focus as dollar pauses for breath

BOJ minions thinking about keeping interest rates low:

• BOJ to keep ultra-low rates, debate fate of huge bond buying

ECB minions say Eurozone bankers are slackers, thinking about sitting on their hands rather than cutting rates again soon:

• ECB says many euro zone banks dragging their feet on loan-loss provisions
• ECB should wait with next rate move until uncertainty recedes, Lane says

Dow slips, but Apple surge helps Nasdaq, S&P to record close; all eyes on CPI, Fed

• Apple market cap surges $215B in rally to record high – where AAPL stands among Mag 7 YTD

Wednesday, 12 June 2024

• Signs and portents for the U.S. economy:

• US consumer prices unchanged in May; rate-cut expectations rise
• Oil little changed as surprise crude stock build caps gains

Fed minions do nothing, expectations build for one rate cut later in 2024:

• Fed leaves rates unchanged, sees only one 2024 cut despite inflation progress

• Fed policymakers see just one rate cut this year, 4 cuts in 2025
• Fed’s road to rate cuts clears as inflation eases

Bigger stimulus developing in China:

• China’s inflation steady, maintains pressure for more stimulus
• China central bank promotes relending to speed up sales of housing stock

BOJ minions thoughts about keeping rates low put at jeopardy by jump in inflation:

• Japan May wholesale inflation jumps, complicates BOJ rate hike path

ECB minions discover Euro not acting like a global reserve currency, say they’ll cut rates slowly:

• Euro’s reserve currency role tumbles at expense of dollar, yen, ECB says
• ECB must cut rates ‘very slowly’, says vice-president de Guindos

S&P 500, Nasdaq post closing record highs after CPI, Fed

Thursday, 13 June 2024

• Signs and portents for the U.S. economy:

• Oil slips on US growth worries, ample crude supply
• US producer prices unexpectedly fall in May

Fed minions remove potential rate cuts from U.S. election calendar:

• In new forecasts, Fed appears to bow out of the election cycle
• Fed meeting, benign inflation keep soft landing hopes alive

BOJ minions signal they’ll keep low rates, will stop buying so many bonds:

• Bank of Japan to keep ultra-low rates, may signal bond taper

S&P notches fourth straight record close, though momentum stalls; Nasdaq gains, Dow slips

Friday, 14 June 2024

• Signs and portents for the U.S. economy:

• Oil prices on track for weekly gain on solid demand outlook
• US home sales crumble in May on higher rates and record prices, says Redfin

Fed minions say they’ll cut rates if data tells them they can:

• Fed’s Goolsbee: ‘More months’ of good inflation data needed

Bigger trouble, stimulus developing in China:

• China new bank loans rise far less than expected in May as demand wobbles
• China set to hold key rate as margin pressure, weaker yuan hamper policy easing

• Falling bond yields leave China’s central bank facing tough call

BOJ minions do what they signaled they would do:

• BOJ keeps rates steady, decides to lay out bond taper plan next month

ECB minions getting worried by France, say they’ll keep cutting rates if data tells them they can:

• ECB’s Lagarde dodges question about French market turmoil
• ECB’s Kazaks backs market bets on cuts if data holds

S&P snaps four-day win streak, but gains for the week; Nasdaq, Dow end little changed

The Atlanta Fed’s GDPNow tool‘s forecast of annualized real GDP growth rate during 2024-Q2 remained at +3.1% with no updates during the week. Its next update will come on 18 June 2024.

Image credit: Microsoft Copilot Designer. Prompt: “A Wall Street bull on a sailing ship looking at the horizon through a telescope”.