weekly market update

After fifteen months and ten consecutive interest rate hikes, the Federal Reserve finally hit the pause button and held short-term rates steady at 5%-5.25% as the central banks opted to stop and assess the lagged economic impact of the fastest tightening cycle in roughly four decades.  However, while a respite in interest rate hikes was widely expected, the Fed did surprise markets by forecasting 50 basis points (0.5%) of additional hikes by the end of 2023 and as a result, many pundits dubbed this week’s meeting announcements as a “hawkish pause”.  The Fed’s track record for rate hike guidance is rather terrible though, and markets were undeterred as the S&P 500 rose for its fifth straight week, a feat that had not occurred since November 2021. 
 
Adding momentum to the rally was continued progress on the inflation front.  Tuesday’s consumer price index (CPI) saw the lowest annual increase in more than two years, as headline inflation fell to 4% year-over-year growth in May, down materially from 4.9% the month prior, as a -5.6% month-over-month drop in gasoline prices led the disinflationary trend.  In addition, the producer price index (PPI) on Wednesday dropped to 1.1% year-over-year vs. April’s 2.3% and was the lowest annual pace since December 2020.  Furthermore, Friday’s consumer sentiment survey showed one year inflation expectations dropped to 3.3% in June, the lowest since March 2021 and down materially from May’s 4.2%.  Therefore, while Fed Chair Jerome Powell flagged a lack of progress on core inflation during his Fed meeting announcements press conference, markets are growing more confident in the downward trajectory of inflation data and investor sentiment has improved to some of its best levels since the end of 2021.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder


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