Federal Open Market Committee’s impact on investments this week

Federal Open Market Committee’s impact on investments this week (Part 1 of 7)

How this week’s economic data will affect your investments

June FOMC, manufacturing, housing, and leading indicators set the theme this week

This week’s dominant event is the Fed’s Federal Open Market Committee Meeting (or FOMC), slated for June 17–18. This market-moving event, is likely to have the most impact on both stock (VOO) and bond (BND) markets.

Part 1Enlarge Graph

Besides the FOMC, some important leading indicators are due to release this week including:

  • Housing indicators: The Housing Market Index, which was issued by the National Association of Home Builders on Monday. Housing starts data will be issued by the U.S. Census Bureau on Tuesday.
  • The Treasury International Capital report, which was issued on Monday, giving volume estimates of securities bought and sold by U.S. residents and foreigners.
  • Manufacturing indices: the Empire State Manufacturing Survey and Industrial Production estimates for May, both released on Monday. The Philadelphia Fed’s General Business Conditions Index will release on Thursday.
  • Retail indicators include the ICSC-Goldman Store Sales and Johnson Redbook indices due to release on Tuesday.
  • Consumer Price Index or inflation estimates for the month of May will release on Tuesday as well. Another inflation indicator, the Atlanta Fed’s Business Inflation Expectations Index will release on Friday.
  • The Conference Board’s Leading Economic Indicators Index for May will release on Thursday.

We’ll be discussing the major indicators among them in greater detail in the following sections. This month’s FOMC is even more important than usual as:

  • The release of the Fed’s updated economic forecasts should provide both stock and bond investors important feedback on the Fed’s views on the direction the economy is headed.
  • There will be three new voting members on the 12-member FOMC, which will impact the Fed’s economic estimates.
  • Further discussion on the Fed’s tools for normalizing its $4.3 trillion balance sheet, and the mechanics of raising the base rate.
  • There may even be discussion on the steps being taken to ensure financial stability in markets once the process of normalization has begun. This will impact ETFs investing in financial intermediaries like the SPDR Financial Select Sector ETF (XLF) and the Vanguard Financials ETF (VFH). Both VFH and XLF have positions in Berkshire Hathaway (BRK-B).

The Fed has already invited comment on a proposal to modify the regulations for capital planning and stress testing for intermediaries on June 12. This aspect of planning the Fed’s exit may be a major talking point in coming meetings.

Ticker index

VOO is the Vanguard S&P 500 ETF. BND is the Vanguard Total Bond Market ETF.

To learn about what investors can expect at this month’s FOMC, please continue reading the next section of this series.

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