Exit the Bear – Monday Morning Market Memo – June 12, 2023

Exit the Bear – Monday Morning Market Memo – June 12, 2023

The major stock market averages finished little changed last week. The Dow Jones Industrial Average rose .3% to 33,877. The NASDAQ Composite inched up .1% to 13,259 and notched its seventh straight weekly gain. The Standard & Poor’s 500 Index added .4% to 4,299 and is now working a four-week winning streak. Although these were only slight gains and paint the picture of a nondescript week, something happened for the history books!

The Standard & Poor’s 500 Index exited bear market territory last week (technically speaking). On Thursday, the S&P closed 20% above the low reached in October of last year, meeting the definition of a new bull market. So out with the Bear and in with the Bull!

Looking to the week ahead, financial markets will be focused on inflation and the Federal Reserve……

On Tuesday, the U.S. Bureau of Labor Statistics releases data for May’s Consumer Price Index. Estimates are the CPI will show a 4.2% year-over-year increase, while the core CPI (which excludes food and energy prices that are typically more volatile) is expected to have risen 5.2%. Inflation is key to Federal Reserve monetary policy.

The Fed concludes its two-day meeting Wednesday afternoon with a policy announcement. The central bank has been aggressively raising interest rates to fight high inflation. With several economic indicators suggesting inflation is moving lower, market expectations are the Fed will pause its series of interest rate increases.

According to the CME FedWatch Tool, the probability is 78.2% the Fed will pause on rate hikes this time around – but interestingly, probabilities are 66.5% the Fed will hike rates by at least ¼ percentage point at the July meeting. Hence, the pause may end up being a skip.

To clarify the current Wall Street lingo (which sounds a bit like a child’s outdoor game): A pause would indicate the Federal Reserve ends its rate hiking cycle (definitely don’t confuse that with a pivot, which would be a policy reversal and interest rate cuts; a skip means that leaving rates unchanged now should not be viewed as the end of the tightening cycle, as more interest rate hikes may still be coming our way; the skip is also referred to as a hawkish pause – and that is probably enough Jargon for a Monday morning!

All the best – Southport Station Financial Management, LLC