Mid-Week Report: Fed Day Has Come & Gone

Good evening,

I recently ran a poll in one of my weekly newsletters asking if you would find it valuable if I were to publish a short mid-week report from time to time, so that is what I am doing here.

This mid-week report will touch on important topics that have gone on within the stock market or economy throughout the week. This mid-week report is intended to be an easy read to keep investors well-informed.

⏸️ Fed decides to hit Pause

Today (6/14) the Federal Reserve decided to pause its rate hike cycle after 10 consecutive meetings in which they had raised the Fed Funds rate. This does not come as a huge surprise as many economists believed this to be the case before the Fed would return to hiking one last time in the July meeting.

The reason for the pause is that the FOMC wants to see more data before continuing its efforts to fight inflation. This is part of the plan they have in order to attempt a soft landing before putting any further pressure on the labor market or the financial market. After all, this week the May CPI report showed further cooling of inflation with the report showed inflation growth slowing to 4%. Still much too high, but down big from its peak levels.

The field was largely set on either a pause now and a hike in July or a hike now and a pause in July, but the curve ball that was tossed by Chairman Powell was the mention of “additional hikes” to come. That was plural. The dot plot showed that the median expectation to a fed funds rate of 5.6% now by the end of 2023. The fed funds rate currently sits at 5-5.25%, which is back at the levels last seen in 2006/2007.

Stocks initially sold off once the news on the Fed pause decision was released, but clawed back those losses to end the day in the green for the S&P 500 and Nasdaq.

📈📉 Market Snapshot

Here is a look at how the markets closed the day:

📰 Macro Events

1. May CPI Report

The May CPI report was released this week showing the fight against inflation is continuing to make headway, albeit slowly. The May report showed CPI increased 4% year over year and rose 0.1% since prior month. Both of those numbers came in slightly below expectations. The 4% level is the lowest we have seen in two years, which is a great sign.

When you exclude food and energy, core CPI rose 0.4% MoM and 5.3% YoY. Here is a look at CPI since the start of 2020.

2. Market Remains One-Sided

I have detailed out in my weekly newsletter how I track the performance of the equal weighted S&P 500 ETF (RSP) compared to the regular S&P 500 and how they have separated. Over the years, the two generally trade in the same direction with not a ton of separation.

• Over the past 12-months, the S&P 500 has climbed 16.6%.

• The Equal Weighted S&P 500 ETF has climbed 9%.

3. Odds of a July Rate Hike jump

• Fed hiked in the June meeting as we just found out.

• After this, the CME FedWatch Tool showed that 65% believe a 25 basis point hike is likely.

• 35% believe the pause will remain and the Fed is likely done hiking for the foreseeable future.

• During the Fed Chair’s press conference he noted that rate cuts are a “couple of years out.”

4. Around the Globe

• 🇬🇧 The UK saw a return to growth, albeit small, as GDP rose by 0.2% in April. The Office for National Statistics attributed the growth to a rise in car sales and a reduced impact of strikes playing a part.

• 🇬🇧 Also in the UK this week, employment hit a record high with 33.1 million people in the workforce, as the government has implemented numerous measures to get people back to work.

• 🇨🇳 China changed directions this week by moving away from the wait and see approach to an easing approach, as the government tries to jumpstart growth in the region. On Tuesday the government cut their 7-day repurchase rate from 2% to 1.9%, the first cut since August 2022. This move is expected to inject 2 billion Chinese yuan into their economy as the post-COVID growth that was expected has failed to take shape thus far. This decision had oil prices jump 3% during the trading session.

5. Poll

Do you believe the Fed is done hiking rates this year or there will be further rate hikes in the coming meeting(s)?

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