Federal Reserve Maintains Cautious Stance, Dampening Rate Cut Expectations
Key Points:
* Treasury yields rose, while stocks fluctuated as Federal Reserve Chair Jerome Powell emphasized a lack of urgency in reducing interest rates.
* Powell reiterated that the economy remains strong and that the central bank can afford to be patient in adjusting its monetary policy stance.
* Bonds fell across the US curve, with longer-maturity Treasury yields rising more than shorter ones.
* Money markets continued to anticipate only one quarter-point rate cut by the Fed this year.
* The S&P 500 retreated slightly, but a rebound in tech stocks prevented a steep decline.
Fed Chair's Remarks
In his testimony before the Senate Banking Committee, Powell stated that with the Fed's policy stance now "significantly less restrictive" and a robust economy, the central bank sees no need to rush into adjustments. He characterized the labor market as "broadly in balance" and not a significant inflationary concern.
Market Reaction
Peter Boockvar of The Boock Report noted that Powell's remarks were in line with expectations, reiterating the Fed's stance from its January meeting. Bradley Saunders of Capital Economics emphasized that Powell's cautious tone suggests the Fed is unlikely to lower rates further in 2025.
Despite Powell's comments, markets continue to push out prospects of another rate cut until later this year, as inflation remains above target and new tariffs may exacerbate inflationary pressures.
Investor Positioning
According to Citigroup Inc. strategists, investor exposure to US stocks has diminished, with outright bullish bets halved and gross positioning reduced. They observe that while positioning is still moderately bullish for the S&P 500 and Nasdaq, gross levels are notably lower, particularly for the Russell 2000. Conversely, European markets have benefited from this shift.
Corporate Highlights
* Boeing surpassed Airbus in monthly jet deliveries for the first time in two years.
* Coca-Cola's profit exceeded expectations as consumers paid higher prices for its beverages.
* Shopify's revenue exceeded forecasts, indicating strong demand for its e-commerce solutions.
* Humana will reduce enrollment in its Medicare Advantage plans to improve government quality ratings that have impacted revenue.
* Travelers expects significant losses from the recent Los Angeles wildfires.
* DuPont's earnings surged, driven by growth in the electronics market.
* Kellogg's profit beat estimates, but the cereal maker cited ongoing sales challenges.
* Elliott Investment Management acquired a $2.5 billion stake in Phillips 66 and plans to push for a pipeline spin-off.
Key Events
* Wednesday: US CPI, Fed Chair Powell's testimony before the House Financial Services panel
* Thursday: Eurozone industrial production, US initial jobless claims, PPI
* Friday: Eurozone GDP, US retail sales, industrial production, business inventories