(Jun 17) : A rally that sent the US stock benchmark to the brink of a record paused before the first Federal Reserve rate decision under Kevin Warsh, with a another slide in oil prices driving bond yields lower.
In a rotation to economically sensitive areas of Wall Street, a selloff in chipmakers after a strong advance dragged down the S&P 500. The Nasdaq 100 dropped about 2%. A post-IPO surge in SpaceX approached 50%. The Dow Jones Industrial Average hit fresh all-time highs. Oil slipped below US$80 on expectations for a revival in supplies.
As the US and Iran prepare to formally sign an interim peace deal Friday, traders are looking for clues from policymakers on the impacts of the war. With a well-flagged hike from the Bank of Japan seen as an exception, most developed-world central banks including the Fed are expected to make no changes this week.
“For markets, a ‘higher-for-longer’ rate backdrop, rather than a renewed tightening cycle, can remain supportive of valuations, in our view, particularly if it reflects resilient economic growth alongside gradually moderating inflation pressures,” said Mona Mahajan at Edward Jones.
She says easing geopolitical tensions could help alleviate inflationary worries and reduce bond yields, potentially driving a broadening of leadership into cyclical sectors and previously lagging corners of the market.
The Fed meeting may not deliver a hike, but it could bring something more important: The first real signal of how Warsh plans to approach inflation, noted Bret Kenwell at eToro. Investors are trying to figure out whether the new Fed chair will use his first major moment to reset expectations, he added.
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“In a matter of months, the narrative has shifted from ‘how many rate cuts this year?’ to ‘how many rate hikes are on the table?’” Kenwell said. “That’s a big swing, and it puts Warsh in a difficult spot: He can acknowledge the recent pullback in oil prices and sound patient, but he can’t afford to look complacent if broader inflation pressures are moving the wrong way.”
Investors are wondering how, specifically, the Warsh Fed will change the way it communicates with them, including whether the quarterly Summary of Economic Projections, or SEP, might be slimmed down. That document includes forecasts for key economic variables and the famous “dot plot” showing where policymakers see interest rates heading.
At TD Securities, the strategists are betting on a drop in the easing bias, upward revisions to inflation forecasts, and the median dot showing no cuts in 2026 as well as next year. They say a strong pushback from Warsh is unlikely as that would damage his credibility and effectiveness.
See also: Wall Street climbs as US-Iran deal spurs slide in oil
“Depending on the tone and how much this meeting reshapes investor expectations, it could dictate the market’s narrative for the next several weeks, at least until earnings season takes over,” Kenwell concluded.
uploaded by Isabelle Francis
