Will the Fed take a dovish stance?
The markets paused the recent rally when stocks closed lower on Tuesday after a Reuters report indicated President Trump’s intention in regards to trade negotiations. President Trump said on Tuesday that he is holding up the trade deal with China until Beijing agrees on as many as five “major points.” He did not discuss these points.
Inflation data released on Wednesday also failed to impress markets. The consumer price index rose moderately by 0.1% in May. May’s inflation data was below the market’s expectations.
However, Tom Essaye, founder of The Sevens Report, discussed his concerns with CNBC about the sudden rally in the stock market not being fundamentally backed. Shawn Cruz, manager of trader strategy at TD Ameritrade, told Bloomberg that markets priced in a rate cut next week and if the rate cut doesn’t happen, markets could pull back.
Markets bounced back yesterday on the performance of the energy sector and Walt Disney Company. The Energy Select Sector SPDR Fund (XLE) tracks the S&P Energy Select Sector Index. It was up 1.1% yesterday while Walt Disney (DIS) stock was up 4.4% yesterday.
As of June 13, the S&P 500 Index is up 5.0%, the NASDAQ Index is up 5.1%, while the Dow Jones is up 5.2% this month.
Currently, trade sentiment is driving the stock market. Thus, investors need to keep a close watch on trade talks. The inflation data and the jobless claims report this week suggest that the Fed might take a dovish stance soon.
We look forward to more details on this in the FOMC meeting next week.