Investors eye Fed rate cut, earnings as key to sustaining market rally
investors are on guard for potential bumps in the second quarter as they gauge whether the Federal Reserve delivers on an expected interest rate cut by June and turn their focus on the health of upcoming earnings.
The S&P 500 ended the first quarter with a gain of more than 10%, its largest first quarter advance since the nearly 13.1% jump in the first quarter of 2019. While so-called Magnificent Seven stocks such as chipmaker Nvidia and Facebook parent Meta Platforms provided the bulk of the gains for the quarter, economically-sensitive sectors such as energy and industrials have rallied over the past six weeks.
Whether the rally continues through June will likely depend on the Fed, which has not yet signaled that inflation has come down enough to justify a rate cut. Markets began January with 6 to 7 cuts priced in over the course of 2024, but are now anticipating 3 cuts after signs of resiliency in the US economy increased investor confidence in a so-called soft landing.
«The market and the Fed are finally aligned on expectations, but that puts even more pressure on every economic report that comes out because it doesn't take a lot to make everyone run the same way,» said Joe Kalish, Chief Global Macro Strategist at Ned Davis Research. «We are expecting more volatility if we don't see more progress on the inflation front.»
Futures markets are now implying a 61% chance of a 25 basis point cut rate at the Fed's policy meeting that concludes June 12, bringing benchmark rates to a range of 5 to 5.25%, according to
