There have been some major news catalysts this week, but thus far, there has only been minor movement at the index level. Entering today's session, the S&P 500 is down 0.1% for the week.
The S&P 500 had been positive, yet it suffered a 0.4% decline on Wednesday, with the entirety of that loss coming after the Federal Reserve raised the target range for the fed funds rate by 25 basis points to 1.75% to 2.00%, published projections that show a median estimate of four rate hikes in total this year, versus three at the time of the March meeting, and printed fed funds rate projections for 2019 (3.1%) and 2020 (3.4%) that are above the longer run expectation of 2.9%.
The takeaway for the market from the Fed's directive, its projections, and Fed Chair Powell's remarks at his press conference is that the world's leading central bank is operating with a more hawkish mindset, notwithstanding the declaration in the directive that the stance of monetary policy remains accommodative.
Policy rates have come up and they are expected to keep going up as the economy improves. Good news for the economy, though, hasn't translated unequivocally into good news for the stock market, which sees good news for the economy as a ticket to higher rates and multiple compression.
The latter understanding won't necessarily undercut the market at this juncture since earnings growth is still strong, yet it is apt to act as a headwind on the market's progress.
Separately, the European Central Bank (ECB) jumped into the spotlight this morning with a policy decision of its own.
As expected, the ECB left its key policy rates unchanged and announced a tapering in its asset purchase program to €15 bln per month from €30 bln per month, starting at the end of September. The ECB anticipates that its asset purchases will end entirely at the end of the year.
The ECB noted that it will continue to reinvest the principal from maturing securities for an extended period of time after the end of the asset purchase program and that it expects current policy rates to remain in place at least through the summer of 2019 and beyond if necessary.
Reading between the lines there, one has a basis to think interest-rate differential trades will continue to favor the U.S. considering the Federal Reserve has now raised its key policy rate seven times since December 2015 and is acknowledging that more rate hikes are most likely on the way.
The latter understanding can help explain why the euro (-1.0% to 1.1692) dropped against the dollar following the ECB announcement and the yield on the 10-yr Treasury note moved lower.
The question is, will the 10-yr yield (now 2.93%) stay lower as the day progresses? The key takeaway from this morning's data is that it was supportive of a strong economy and the Federal Reserve's more hawkish-minded rate outlook.
- Retail sales for May increased 0.8% (Briefing.com consensus +0.4%) and were revised to 0.4% (from 0.3%) for April. Excluding autos, retail sales jumped 0.9% (Briefing.com consensus +0.5%) and were revised to 0.4% (from 0.3%) for April.
- Initial jobless claims for the week ending June 9 decreased by 4,000 to 218,000 (Briefing.com consensus 223,000). Continuing claims for the week ending June 2 fell by 49,000 to 1.697 million and left the four-week moving average at its lowest level since December 8, 1973.
- Import prices increased 0.6% in May and were up 0.2%, excluding fuel. Export prices also rose 0.6% and were up 0.5%, excluding agriculture
- Nonfuel import prices were up 1.9% year-over-year, versus 0.9% for the 12 months ending May 2017
- Nonagricultural export prices were up 4.9% year-over-year, versus 1.6% for the 12 months ending May 2017
The futures market seemed to like what it saw in the data. It spiked to its highs of the morning, recognizing that strong consumer spending activity should translate into strong GDP growth and strong earnings growth.
The S&P futures, which were garnering some support as it was from Comcast's (CMCSA) $65 billion offer for 21st Century Fox's (FOXA) entertainment assets, are up seven points and are trading 0.3% above fair value. The Nasdaq 100 futures are up 23 points and the Dow Jones Industrial Average futures are up 80 points.
The cash market, then, will make another minor move at the start of today's trading as it turns over in its mind the latest macro news catalysts.