It is sometimes difficult to know what news has the biggest impact on financial markets, but last week the S&P 500 rallied 2.8% from its low point on Wednesday on news of a debt ceiling bill passing a crucial house rules committee vote, comments by the newly nominated Fed Vice Chair favoring “skipping a rate hike” in June and a generally positive May jobs report.
- Resolving the debt-ceiling impasse was critical to stability in financial markets, but the certainty of a solution triggered concern that its resolution allowed the Fed to revisit a further rate increase in June to address higher than expected inflation in April. Last Wednesday, two FOMC members rebutted hawkish comments from others, thereby reducing equity market angst.
- Non-farm payrolls increased by a better-than-expected 339,000 last month, but the unemployment rate still increased to a seven-month high of 3.7% because of reporting differences in the household vs employer surveys relating to self-employed workers. Wage growth slowed and average weekly hours worked also declined slightly. Overall, all this was positive for equity markets which were up 1.45% after the Friday report.
- Exports are set to fall in the second quarter while imports rise, which means negative net exports will subtract around 1.5% points from second-quarter GDP growth.
Even without changes to the Fed funds rate at the Fed’s June 13-14 meetings, they will be providing an updated Summary of Economic Projections revealing the FOMC member expectations for inflation, economic growth, and interest rates for the rest of 2023 and into 2024-2025.
- May CPI inflation will be reported on Tuesday, June 13, and PPI inflation on Wednesday, June 14. Keel Point’s Steve Skancke will be on Bloomberg Radio on June 13 at 3:05 p.m. to discuss their impact and likely Fed response.
- With inflation still stickier and the labor market hotter than the Fed would like, there is still a good chance they will raise rates and reduce liquidity further at their July meeting based on June labor market and inflation data.
Artificial Intelligence (“AI”) continues to be a catalyst for positive earnings growth in tech companies which have been a principal driver of stock market performance – the S&P 500 being up 11.53% and the Nasdaq 100 being up 33.91% so far in 2023.
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