It was a mixed day for the major market averages on Tuesday as investors eagerly awaited Federal Reserve Chair Jerome Powell’s speech, with expectations of the first rate cut likely to occur in September. The Dow Jones Industrial Average was up 0.1%, the S&P 500 was down 0.2%, and the Nasdaq Composite fell by 0.1%. Alongside this, Treasury yields rose, with the 10-year yield climbing 7 basis points to 4.67% and the 2-year yield increasing by 3 basis points to 4.95%.
Deutsche Bank’s Jim Reid noted that equities initially opened higher due to the absence of immediate escalation in the Middle East, but sentiments changed with renewed concerns over Israel’s response to Iran’s weekend attack and the rise in rates. Reid expressed his belief that navigating the current US economic cycle will be challenging, given the stark changes in money supply. Expectations for a rate cut in June decreased to 21%, while the likelihood of one happening in September is now at 70.5%, according to CME Group’s FedWatch tool.
With the possibility of a rate cut in June diminishing due to strong retail sales and core retail sales accelerating, pressure on the Federal Reserve to reduce interest rates has lessened. Richard Hunter from Interactive Investor highlighted that markets are facing pressure, with ongoing Middle East tensions, lackluster earnings season, and economic data showing little need for interest rate cuts. Additionally, the healthy consumer spending signals economic strength, further reducing the urgency for the Federal Reserve to lower interest rates.
