It should be another fascinating week for markets with the Fed meeting formally for the first time since the tumult and mayhem around President Trump’s Liberation Day. Of course, pressure on Jerome Powell to cut rates has come from on high, and it appears very likely President Trump will have something to say about the Fed’s expected on hold decision. But there doesn’t seem to be any reason to ease policy just yet, as rate setters try and square up their dual mandate of price stability and maximum employment.
It’s still too early to see damage to growth, inflation and jobs which means the Fed is likely to be ‘behind the curve’ if it waits for NFP and other backward-looking labour data to roll over. Media stories about empty shelves in US retailers while prices rise will also heap pressure on Jay Powell. And yet, stock markets are relatively buoyant, on expectations of at least three and a bit (80bps) of rate cuts this year, US-China talks to kick off in the next few weeks, plus some tax cuts thrown in too.
We remind ourselves that after all the April chaos, the S&P 500 saw the smallest monthly change in almost two years. That’s bullish and the rebound in the S&P 500 has been impressive, with Mag 7 results generally solid, as AI capex remains in play and foreign selling of US equities has burned itself out. The benchmark index is enjoying a nine-day win streak, which last occurred in late 2004. The 200-day SMA is now close at 5,746, with support at a major Fib retracement level (61.8%) of this year’s-high-to-low at 5,646.