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The equity futures market is trading higher, but we wouldn't call it a comfortable trade. There is a cloud of uncertainty hanging over the market with respect to the Israel-Iran conflict and the potential of the U.S. getting involved in it.
Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 46 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 20 points and are trading fractionally above fair value.
Press reports suggest President Trump is considering options that range from a diplomatic solution to a U.S.-led military strike on Iran and that a decision could be visible in the next 24-48 hours. Iran's supreme leader has said there will be "irreparable damage" if the U.S. gets involved.
There is plenty of saber rattling going on, yet market bears are still holding their fire. Granted, stocks traded lower yesterday, but the major indices are still up for the week, so it is a stretch to suggest the market is truly fearful about the Israel-Iran conflict.
The market is respectful of the conflict, but it is operating more with a mindset that it is not going to get ahead of it by pulling back sharply when it also knows a diplomatic solution is still on the table.
It is also not getting wrapped up in the geopolitical angst, cognizant that there is a successful history in getting through these types of things. At the same time, it is also cognizant that there is another important issue on the table today, that being the FOMC decision, which will feature a policy directive and updated Summary of Economic Projections (SEP) at 2:00 p.m. ET and Fed Chair Powell's press conference at 2:30 p.m. ET.
There is no intrigue in terms of today's rate decision. The market widely expects the Fed to sit tight with its policy rate at 4.25-4.50%. The intrigue revolves around the SEP and what it will convey about the Fed's GDP, inflation, and policy path projections. The SEP in March had two rate cuts before the end of the year as the Fed's median estimate.
It is fair to say that growth has been better than expected and that inflation rates have improved, but there is still a heightened sense of uncertainty about the inflation outlook given that oil prices have popped above $75.00/bbl with the Israel-Iran conflict and given that the pause on reciprocal tariffs is set to expire July 9.
In other words, we expect the Fed to continue to cite that uncertainty as a basis for maintaining a wait-and-watch approach with the fed funds rate.
There isn't any significant corporate news of note driving the market, which is concentrating on the geopolitical scene, the Fed's decision, and this morning's economic data.
Housing starts declined 9.8% month-over-month to a seasonally adjusted annual rate of 1.256 million units (Briefing.com consensus 1.356 million), while building permits declined 2.0% month-over-month to a seasonally adjusted annual rate of 1.393 million (Briefing.com consensus 1.411 million).
The key takeaway from the report is that housing starts are weak, sitting at their lowest level since May 2020; moreover, a 2.7% month-over-month decline in single-unit permits doesn't connote an encouraging outlook for starts.
Separately, initial jobless claims for the week ending June 14 decreased by 5,000 to 245,000 (Briefing.com consensus 253,000), while continuing jobless claims for the week ending June 7 decreased by 6,000 to 1.945 million.
The key takeaway from the report is that it covers the week in which the survey for the June employment report is conducted, and with initial jobless claims still at a relatively low level, there will be a basis for economists to expect another decent gain in nonfarm payrolls (all things considered).
