The Calm Before the Fed

GeneralMarket Update
The Calm Before the Fed

, The Calm Before the FedAfter a busy string of weeks focusing on debt ceiling negotiations, Q1 earnings, and economic releases, last week welcomed relatively quiet markets in a lead up to FOMC meeting. Last week, quiet news was good news for markets, and stock indices rallied. The S&P 500 gained 0.39%; the Dow Jones rose 0.34; and the NASDAQ climbed 0.14%. Meanwhile, bonds sold off, with the Agg down -0.12%. Alternatives continued to be mixed, with Bitcoin futures down -3.32%, gold up 0.39%, silver up 2.79%, while oil fell -1.28% due to ongoing recessionary concerns.

Perhaps the biggest news of the week came when the PGA Tour, the DP World Tour (formerly European Tour), and LIV Golf announced a merger agreement that stunned the golf world. The deal, which is purportedly a result of increased competition in the industry, is still unfinalized but would create a joint, for-profit entity following a year of intense antitrust litigation between the parties.  Reddit (scheduled to have its IPO in the second half of the year) is facing backlash from users and moderators over implementing costly API pricing that is threatening the viability of third party apps. For example, Apollo, a leading user of this data, has publicly estimated their costs would increase by $20 million each year from this new pricing model.  Similar stories have led to a 48-hour boycott and several announced closures at the end of the month, should the pricing be fully implemented.

Despite the generally mundane economic news flow, this week will make up the difference, bringing: CPI, PPI, jobless claims, and retail sales data. On Wednesday, PPI is expected to see core PPI M/M remain flat, while headline PPI M/M is expected to decrease. On Thursday, retail sales M/M are expected to show weakening growth.

The highlight of the week is expected to be the Fed meeting on Wednesday, when the FOMC releases their decision on interest rates. Markets largely expecting no hike in this week’s meeting. The narrative has become more difficult in recent weeks, as the Fed’s dual mandate of price stability and full employment are both seeing impactful data prints. Inflation is cooling but potentially staying at higher levels.  Employment and jobless claims data has been resilient so far, but employment saw a strong recent print and unemployment ticked upward. As both employment and inflation data are both under pressure and under review, Fed policy remains less than certain.

In geopolitical events, close to home, Philadelphia saw a gasoline tanker catch fire under a raised section of I95 leading to the collapse of the roadway and leaving both the north and southbound segments closed. Repairs are expected to take months and cause traffic issues in the area. In the war in Ukraine, the Nova Kakhovka Dam was destroyed last week, causing extensive flooding and will limit access to water for southern Ukraine. In the Philippines, the volcano Mount Mayon erupted leading to the evacuation of 13,000 people, and the nation is on alert for monsoon rains from an approaching typhoon.

Entering a Fed “decision” week, especially one bringing such a plethora of economic reports, leads us to expect more uncertain markets.  Such uncertainty is not something that we anticipate are growing accustomed to (or fond of).  Nonetheless, markets remain volatile, we aren’t having much trouble remembering to hold at least one thing constant in our lives…prayer. “Rejoice in hope, be patient in tribulation, be constant in prayer” (Romans 12:12).

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