Stock Market Update

[BRIEFING.COM] If one didn't know any better, today was just a run-of-the-mill day for the stock market. The major indices were little changed, but it wasn't an ordinary day. Today was a day filled with geopolitical intrigue and wonderment about the Federal Reserve's outlook.

The Israel-Iran conflict took precedence as an early driver. Stocks moved higher, keying on a remark from President Trump, who said there is still time for Iran to negotiate. The idea that a diplomatic solution has not been written off, despite the president's take yesterday that his patience with Iran is wearing thin, was a welcome headline consideration.

It would be remiss not to add, though, that the president also said Iran cannot have a nuclear weapon and that later this week or next week will be "big." That view mitigated some of the excitement around the first headline, yet stocks held their ground in positive territory leading up to the FOMC decision and release of the Summary of Economic Projections (SEP) at 2:00 p.m. ET. 

As expected, the FOMC voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%, but the SEP was confounding in that it showed a median estimate for two rate cuts before the end of the year, the same as in the March SEP, but an increase in the median estimate for PCE inflation to 3.0% from 2.7% and an increase in the median estimate for core PCE inflation to 3.1% from 2.8% for 2025. The median estimate for real GDP growth, meanwhile, was lowered to 1.4% from 1.7%, and the median estimate for the unemployment rate bumped up to 4.5% from 4.4%.

Fed Chair Powell's overarching message in the press conference, which began at 2:30 p.m. ET, is that uncertainty remains elevated and that the Fed needs more time to assess incoming data before determining its next policy move. He also expressed an expectation for some meaningful inflation in coming months on account of the tariffs.

Stocks retreated from higher levels, and Treasury yields rose, in the wake of the FOMC decision and press conference, but the reaction function was fairly constrained given the magnitude of the event. The S&P 500 finished the day flat, the 2-yr note yield settled unchanged at 3.95%, and the 10-yr note yield settled the session up one basis point at 4.40%.

In brief, while buying efforts faded, there wasn't a lot of conviction on the part of sellers. 

Sector performances reflected the reserved action. Four sectors finished higher. The information technology sector (+0.4%) was the biggest gainer. Seven sectors finished lower, with energy (-0.7%) and communication services (-0.7%) in a dead heat for biggest loser, only neither was down that much.

WTI crude futures traded above $75.00/bbl earlier in the day but settled up just 0.4% at $73.56/bbl, coming off the boil as the president dangled the carrot of a possible diplomatic solution.

In other developments, the CBOE Volatility Index declined 6.2% to 20.26; initial jobless claims remained at a relatively low 245,000, and housing starts in May fell to their lowest level in five years.

• S&P 500: +1.7% YTD
• Nasdaq: +1.2% YTD
• DJIA: -0.9% YTD
• S&P 400: -3.1%
• Russell 2000: -5.3% YTD

Reviewing today's economic data:

• 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).
• Housing starts declined 9.8% month-over-month in May 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.

[BRIEFING.COM] There has been some volatility since the Fed decision and release of the Summary of Economic Projections at 2:00 p.m. ET, but we would venture to say that the market has not shown a strong reaction to the news. The S&P 500 is not far from where it was when the news hit at 2:00 p.m. ET.

Treasuries, on the other hand, saw their gains from earlier in the day wiped away, while the U.S. Dollar Index saw a pop that reflected an expectation for the Fed to continue to stand pat with its policy rate. The U.S. Dollar Index is up 0.1% to 98.90 after being down 0.3%.

Most S&P 500 sectors are still higher for the day but have faded back from higher levels seen before the Fed decision.

[BRIEFING.COM] The market is digesting the Fed's updated projections and comments from Fed Chair Powell, who is in the middle of his press conference to discuss the Fed's position.

His overarching message so far is much the same: there is a lot of uncertainty still, and the Fed will be waiting for more data to determine when to make a policy move. The translation here is that the Fed is still in a wait-and-watch mode and won't be cutting rates soon.

Stocks are a little weaker since the decision came out at 2:00 p.m. ET and Treasury yields are higher than they were before the 2:00 p.m. ET announcement.

The 2-yr note yield, which was at 3.90% just before the decision, is at 3.94% now, down one basis point from yesterday's settlement. The 10-yr note yield, at 4.35% just before the decision, is at 4.40% now, up one basis point from yesterday's settlement.

[BRIEFING.COM] As expected, the Federal Open Market Committee (FOMC) voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%. The market was quick to dismiss that decision, though, turning its attention instead to the Summary of Economic Projections, which had some changes in it but not the changes the market (or the president, for that matter) wanted to see.

Specifically:

• The dot plot showed the median rate estimate at 3.90% for 2025, which continues to suggest an expectation that there will be two rate cuts before the end of the year.
  • The median rate estimate for 2026 was moved up to 3.60% from 3.40%, and the median rate estimate for 2027 was bumped up to 3.40% from 3.10%.
• The median PCE inflation estimate for 2025 was increased to 3.0% from 2.7%, while the median core PCE inflation estimate rose to 3.1% from 2.8%.
• The median real GDP estimate for 2025 was lowered to 1.4% from 1.7%.
• The median unemployment rate estimate increased to 4.5% from 4.4%.

The policy directive continued to state that "inflation remains somewhat elevated." Dropped from the March directive was the comment that the committee "judges that the risks of higher unemployment and higher inflation have risen" and the view that "uncertainty about the economic outlook has increased further." The latter has been replaced by the observation that "uncertainty about the economic outlook has diminished but remains elevated."

The initial reaction to the FOMC decision and projections has been muted, suggesting that, while the market may not like the changes seen in the SEP, it wasn't necessarily surprised by them. Market participants are also sitting tight in front of Fed Chair Powell's press conference, which begins at 2:30 p.m. ET, and could contain some more market-moving cachet.

In terms of the Fed's thinking, though, the compilation of the policy directive and SEP leans in the direction of anticipating an economic environment that is closer to a stagflation environment than an environment of strong growth and tame inflation.

In brief, it also points to a Fed that is sticking by a wait-and-see approach.

[BRIEFING.COM] Down and up action in the major averages has us a hair above levels from half an hour ago, the tech-heavy Nasdaq Composite (+0.44%) still narrowly leading the modest advance.

Gold futures settled $1.20 higher (+0.04%) at $3,408.10/oz, supported by soft U.S. economic data that bolstered expectations for future Fed rate cuts. Geopolitical tensions in the Middle East and continued central bank buying also underpinned demand, while investors awaited clarity from today's FOMC decision.

Meanwhile, the U.S. Dollar Index is down about -0.1% to $98.73.