S&P consolidates near highs

11. Juni

US stock index futures came under selling pressure this morning. This followed yesterday’s lacklustre session which saw modest gains for all the majors. Equity markets appear to be consolidating ahead of tomorrow’s big announcements, with both the S&P 500 and NASDAQ 100 holding close to all-time highs. So much now hinges on where the CPI comes in. The consensus expectation is that Headline CPI (including food and energy) will hold steady at 3.4% in May, unchanged from April’s update. If so, that will be below the recent highs of 3.7% from September and October, but still well above the 3% recorded last July, and way above the Fed’s own 2% target. If recent history is any guide, then there should be widespread relief even if CPI only matches expectations. But the next big test for markets comes just a few hours later when the Federal Reserve’s FOMC concludes its two-day monetary policy meeting. While the market doesn’t expect any change in the Fed Funds rate, investors will be anxious to see if there are any changes to the quarterly Summary of Economic Projections (SEP) from the last release in March. The SEP shows what FOMC members are forecasting for GDP, unemployment, inflation and, crucially, the Fed Funds rate for this year and beyond. The ‘Dot Plot’ should provide clarity over the likelihood of rate cuts for the rest of this year. Crucially, do FOMC members expect to reduce rates by 25 or 50 basis points before year-end? And are there any members predicting a rate hike first? After this, Fed Chair Jerome Powell will hold a press conference, so market sentiment could shift quickly, depending on his outlook for the US economy, and on inflation in particular.
By mid-afternoon, the S&P 500 had fallen further as had the Dow, while the mid-cap domestically focused Russell 2000 had lost over 1%. In contrast, the NASDAQ 100 was in positive territory. Apple, which is a constituent of the S&P, Dow and NASDAQ 100, was up 5% on news of its latest foray into AI. But it had an outsized positive effect on the NASDAQ 100 due to its weighting in the tech-heavy index.