Markets In Rally Mode Heading Into Fed Week
Various markets are displaying unpredictable behavior as the US financial landscape presents challenges. Despite concerns expressed by many public companies regarding earning growth, inflation, and increased capital costs, several AI-focused tech giants have propelled equities back into a bull market. Residential real estate, too, remains resilient. Despite higher mortgage rates, housing stocks are near all-time highs and prices are holding steady in most market segments.
While leading economic indicators and sentiment readings suggest a potential recession, employment data continues to surpass expectations. The most recent weekly unemployment figures were higher than anticipated. Credit conditions remain tight, with further tightening observed. Currently, default rates remain relatively low, primarily concentrated in commercial office spaces to date. The likelihood of a soft landing in the economy has improved. The recent substantial equity rally prompts speculation about the potential for a different outcome this time despite the memories of significant market downturns (the 2000 tech bubble and the 2008 financial crisis) still resonating among older generations.
Looking Ahead: Inflation & Rate Hikes
The upcoming Federal Reserve meeting carries significant weight as investors eagerly anticipate insights from Chairman Powell and the committee. The consensus points to a hawkish pause in rate hikes, with another potential increase in July. That being said, recent equity market strength and surprise rate hikes in countries like Australia and Canada suggest that a 0.25 basis point hike in June cannot be entirely ruled out. The release of important inflation reports early next week may further influence the committee’s decision, especially if it reveals a higher-than-expected inflationary environment.
