Markets on Pause

No momentum...

KR Opinion

As we progress through this week, I plan to monitor the Federal Reserve closely. Currently, the general consensus seems to be that the Fed will maintain the status quo, but I believe they have a unique opportunity now—more than at any point in the past year and a half—to significantly influence the markets.

Despite the Fed's reputation for avoiding surprises, they aim to make impactful decisions that steer the market in their desired direction. One potential shock could be a rate cut at this meeting, defying all expectations and possibly destabilizing the markets.

However, it's more likely that they will clarify their plans to slow down and eventually stop quantitative tightening, which has been in effect for over eighteen months. This action would primarily affect the longer end of the yield curve, likely leading to a flattening rather than further steepening.

Additionally, we anticipate minor economic updates this Tuesday, including the Case-Shiller index on housing prices, consumer confidence, and the Chicago PMI, a less significant indicator.

I expect the markets to continue their choppy trajectory until the conclusion of the Fed's meeting on Wednesday. The Fed might surprise us and signal a supportive stance towards the markets, possibly indicating less concern about inflation.

However, contrary to this, I suspect inflation might rise as we enter the second and third quarters and the end of the year. This opinion may not align with the Fed's views, which could lead to unexpected actions.

Looking Back on Monday’s action

Today, the stock market mostly saw gains, spurred by a recovery in major indices last week. However, there was noticeable volatility in the afternoon, linked to the Treasury Department's release of its quarterly borrowing estimates.

Stocks dipped sharply at 3:00 PM ET after the Treasury projected that borrowing for the second quarter would hit $243 billion—$41 billion above last quarter’s estimates. Despite this, the market recovered, and the indices rebounded towards the end of the trading session.

Several stocks ended positively, contributing to a 0.7% increase in the equal-weighted S&P 500. Notably, declines in major companies like Meta Platforms, Alphabet, and Microsoft curbed overall market gains. Moreover, the S&P 500 and Nasdaq Composite faced technical resistance as they neared their 50-day moving averages.

On the upside, Tesla saw a significant rise after receiving temporary approval for its self-driving service in China, according to The Wall Street Journal. Also, Apple received a rating upgrade to 'Outperform' from 'Market Perform' by Bernstein, which provided some support against broader market declines.

Out of the S&P 500 sectors, only communication services and financials recorded losses, while the consumer discretionary sector achieved the largest gain of 2.0%.

·S&P 500:+7.3% YTD

·Nasdaq Composite: +6.5% YTD

·S&P Midcap 400: +4.7% YTD

·Dow Jones Industrial Average: +1.9% YTD

·Russell 2000: -0.6% YTD

Tuesday's economic calendar includes:

•8:30 ET: Q1 Employment Cost Index (KR Forecast consensus 1.0%; prior 0.9%)

•9:00 ET: February FHFA Housing Price Index (prior -0.1%) and February S&P Case-Shiller Home Price Index (KR Forecast consensus 6.7%; prior 6.6%)

•9:45 ET: April Chicago PMI (KR Forecast consensus 44.5; prior 41.4)

•10:00 ET: April Consumer Confidence (KR Forecast consensus 104.0; prior 104.7)

S&P 500 Futures