Fed day dawns with investors on the edge of their seats waiting for Chairman Jerome Powell and company’s latest words on the economy. The market apparently sees a “V-shaped” recovery shaping up, so what does the Fed see?
With that looming, things might be uneventful in the hours leading up to this afternoon’s Fed press conference. There just aren’t a lot of other potential market-moving catalysts out there right now, and there could be some back-and-forth trading.
Judging by what we’ve seen in pre-market hours, it looks like the Nasdaq (COMP) and the Dow Jones Industrial Average ($DJI) are set to continue yesterday’s pattern where they parted company. The $DJI fell and the COMP rose before the opening bell, just like on Tuesday. That suggests “stay-at-home” tech stocks might have the upper hand for the moment, though the $DJI started recovering as the open drew closer.
Yesterday’s weak close for the $DJI and the S&P 500 Index (SPX) was actually kind of healthy, when you think about it. The market had been cruising higher on autopilot for so many days it probably needed a little wash-out at some point, and profit-taking was likely to blame.
What’s encouraging is that even with the selling, the SPX was able to close yesterday above the psychological 3200 level. That could be positive from a technical perspective heading into today, with 3200 possibly a support point. Resistance might be near 3225 and 3250.
Meanwhile, gold is up for the third day in a row. The $1,700 an ounce level had been one that some analysts were watching, and now the metal trades at $1,731. So for those who use gold as a warning signal, it’s certainly flashing. Volatility has also been swinging higher this week after trending lower for more than a month.
A sprinkling of data this morning showed consumer prices falling 0.1% in May vs. analysts’ expectations of a flat reading. Nothing much to see here, move on.
Not Much Give on Rates as Fed Gathers
Futures trading suggests the Fed is likely to leave its benchmark rate at the current level of between zero and 0.25%, so there’s little drama there. The decision will be announced at 2 p.m. ET, followed by Fed Chair Jerome Powell’s press conference.
Any drama that does happen could center around the Fed’s statement Powell’s words at what seems likely to be a virtual podium. Will Powell and the Fed make any announcements about new measures to help the stumbling economy? Does it look like things are getting better, the way last week’s jobs report suggested? Many think Powell might try to convey a cautiously optimistic kind of tone.
It will be interesting to hear what Powell and company lay out in terms of growth. This may be the first hint about the “optimism trade” and whether investors seem to be in line with the central bank or out of sync.
One key thing to consider watching for is the Fed’s updated “dot-plot” of rate expectations. This tool, which the Fed releases once per quarter, provides a forecast of Fed officials’ individual expectations for the rate path over the next two to three years.
While the Fed releases a dot-plot once per quarter, that wasn’t the case in Q1 when the regular meeting got canceled as the pandemic raged and the Fed pushed through two emergency rate cuts. Those rate rollbacks took the Fed funds rate down from a range of between 1.5% and 1.75% at the start of the year to between zero and 0.25% where it stands now.
The dot plot will show investors for the first time in six months …
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