Market Gains Could Be Blunted by Fed Rate Moves This Year

Market Gains Could Be Blunted by Fed Rate Moves This Year

Investors are losing hope for an interest-rate cut later this year by the Federal Reserve. Previous expectations for a cut by December have helped contribute to a 2023 stock rally that has sent the tech-heavy Nasdaq up 26% so far this year, hitting a new 52-week high on Monday.

• Investors now expect the Fed’s benchmark rate to reach 5% at year-end, The Wall Street Journal reported, citing Tradeweb, up from May expectations of just above 4%. The prospect of falling rates has lifted shares of Apple, Amazon.com and Meta Platforms double-digits or more this year.
• The S&P 500 touched an intraday level that would put it in a new bull market, which means 20% higher than its recent low, but it gave up that gain to end lower. Seven stocks of big tech companies are responsible for the index’s 11% gain this year, the Journal reported.
• The debt ceiling issue is resolved and corporate earnings season is largely over, leaving investors to wait for the Fed’s decision on interest rates next week. The CME FedWatch tool puts the probability of a rate pause at around 79% in June.
• Fitch Ratings still has the U.S. on rating watch negative as it considers the full implications of the brinkmanship in Washington over the debt ceiling issue, even though it was resolved with President Joe Biden signing a deal into law over the weekend.

What’s Next: If Fitch does downgrade the U.S. credit rating this time, it might trigger a profit-taking period for the S&P 500, MarketWatch reported, citing Sam Stovall, chief investment strategist at CFRA Research.

—Liz Moyer and MarketWatch