Markets “In a Nutshell” for June 20, 2023
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 1.20%, the S&P 500 was up 2.60%, and the NASDAQ rose 3.20%. Foreign stocks (MSCI EAFE) were also up, rising 2.4%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.76%. (Data source: Wall Street Journal)
Fed Pauses Rate Hikes
The Fed left rates unchanged last week as they did not raise rates for the first time in the last 14 months. This comes after the Fed had lifted rates by 5%, the most in more than 40 years. This was the expected decision so markets did not have too much of a reaction although they did drop slightly after the meeting as the Fed insisted on more rates later in the year. Although the Fed remains open to raising rates later in the year the market does not fully believe them. With jobless claims on the rise, up 35% since January, and economic activity in manufacturing and services slowing another rate hike may not be necessary. Currently, Fed officials are forecasting 2 more hikes of 25 basis points each by the end of the year. Economic data in the coming months will most likely be the deciding factor on the Fed’s decision as far as rate hikes go.
Inflation Continues to Cool Down
The May CPI report was released last week and came in at the lowest we have seen in the past 2 years at 4.0%. Core CPI which strips out food and energy is now at its lowest levels since November of 2021 as declines in airfare and recreation have helped. As inflation continues to come down, it is proof that the rate hikes are slowly working their way through the economy as intended. The challenge the Fed continues to face is trying to slow the economy down a little but not too much to the point we enter a deep recession that they then need to try and fix. Although inflation has come down substantially, we are still higher than the Fed’s target of 2%. Core inflation remains higher than the historical average of 2.4% as we are at 5.3% which could lead the Fed to raise rates if that number does not come down. Despite all the talk and worry of rate hikes, the market has rallied over 7% since the last hike which historically is what happens when the Fed pauses.
Before last week, how many consecutive meetings did the Fed raise rates? (Scroll Down for Answer)
Have a Great Week!
3. 10 meetings. The Fed raised rates for 10 straight meetings before the most recent pause. Throughout those 10 meetings, the fed funds rate went from 0% to 5% in an effort to combat inflation.