You have to feel for Jay Powell. He’s in a tough spot – facing pressure from the market and the President to cut rates. However, to his credit – he can separate the noise from the signal. The Fed Chairman reiterated his narrative – signaling the need for a more cautious stance amid ongoing economic uncertainty. In addition, he emphasized the Fed needs to maintain credibility and independence. However, there was some dissent within the ranks…
Fed Reserve
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S&P 500 Hits Stall Speed
Another week comes to close – as we draw near the end of the second quarter. For the past two weeks or so – investors are reluctant to push prices much higher. From mine, the index is not only expensive – trading near a forward price-to-earnings (PE) ratio of 22x – the downside risks don’t handily offset the (possible) upside reward. For eg, it would not surprise me to see the S&P 500 trade up to a zone of 6,200 (adding another 5% or so). However, equally I see a possibility for a 10% to 20% move lower given the risks to earnings growth, inflation (from tariffs), employment and geopolitical tensions.
Powell’s Limited Options
Not for the first time, the Fed is in a very difficult spot. Whilst always a dominant force in global markets, for now, Powell’s team is not in the front seat. We learned this week the direction of U.S. monetary policy (over the coming months) depends heavily on developments well beyond the Fed’s control. And unfortunately for investors – it could be a long (US) summer. In its latest decision, the Fed held rates steady, as expected, citing strong economic activity, low unemployment, and persistent—but slightly elevated—inflation.