Waiting for Powell but Not Expecting Much
We doubt the Fed Chair will say anything new about rate-cut timing ahead of this week's key infation reports.
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* Fed Chair Powell starts two days of congressional testimony today at 10 a.m. ET.
* We expect Powell to stick to the current party line ahead of the June CPI and PPI reports later this week.
Following yet another record close for the S&P 500 and the Nasdaq Composite, both market barometers remain in overbought territory ahead of Fed Chair Powell’s semiannual address to Congress that kicks off at 10 a.m. ET later this morning. Those hoping for Powell to break something new on the monetary policy front are likely to be disappointed, however.
More likely the Fed chief will acknowledge recent data that we’ve discussed here that point to the economy slowing and inflation improving. Still, Powell is likely to reiterate the message he repeated last week – that the Fed wants to see more data before making its first move to cut rates.
With the June CPI and PPI reports out later this week, we should not expect Powell to comment on the two rate cuts the market increasingly sees for this year depicted in the CME FedWatch Tool. In a market that is increasingly priced to perfection, that lack of new information could ruffle a few feathers. But to us what we learn on Thursday and Friday between the start of the June-quarter earnings season and those inflation reports will dictate how the market closes out the week.
While we wait for Powell and his comments, the NFIB Small Business Optimism Index for June reached its highest level of the year at 91.5. We see that as sort of good news, but it is counterbalanced by the takeaway from the report: “Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.”
On the jobs front, this latest NFIB report found that 37% of all small business owners reported job openings they could not fill in their current period, down five points from May. Of the 60% of owners hiring or trying to hire in June, 85% reported few or no qualified applicants for the positions they were trying to fill. This suggests we will continue to see some wage pressure continue and ongoing job gains. Whether they are as robust as the figures seen in the first half of 2024 remains to be seen.
Because the market is overbought and as we’ve discussed the S&P 500’s P/E valuation is stretched, we will likely remain on the sidelines today.
