Fed Hits the Pause Button (For Now)

The S&P 500 finished higher for the fifth consecutive week reflecting cooling inflation, resilient economic conditions, and the likelihood the Fed is nearing the end of its rate hiking cycle.

June 19, 2023

Performance for Week Ending 6.16.2023:

The Dow Jones Industrial Average (Dow) finished up 1.25%, the Standard & Poor’s 500 Index (S&P 500) gained 2.58% and the Nasdaq Composite Index (NASDAQ) tacked on 3.25%. Sector breadth was positive with 10 of the 11 S&P sector groups closing the week higher. The Technology sector (+4.44%) led the way followed by the Materials (+3.32%) and Consumer Discretionary (+3.15%) sectors.

Index* Closing Price 6/16/2023 Percentage Change for Week Ending 6/16/2023 Year-to-Date Percentage Change Through 6/16/2023
Dow 34,299.12 +1.25% +3.48%
S&P 500 4,409.59 +2.58% +14.85%
NASDAQ 13,689.57 +3.25% +30.79

*See below for Index Definitions

MARKET OBSERVATIONS: 6/12/23 – 6/16/23

The S&P 500 finished higher for the fifth consecutive week reflecting cooling inflation, resilient economic conditions, and the likelihood the Fed is nearing the end of its rate hiking cycle. After trading in a range between 3800-4200 since late last year, the S&P 500 has recently broken above the upper limit and closed the week near the highest level in 14-months. The broader market index has now gained over 23% off the low reached on October 12, meeting the technical definition of a bull market. After a string of 10 consecutive rate hikes, the Fed hit the pause button at last week’s FOMC meeting. As widely expected, the FOMC left the fed funds rate unchanged at a range of 5.00-5.25%. However, the move was viewed as a “hawkish pause” as the Fed left the door open for additional rate hikes at future meetings. According to the after-meeting communique “holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.” Fresh quarterly Fed forecasts showed the terminal rate rising to 5.6% by year end, according to the median projection, compared with 5.1% in the previous round of projections. The FOMC vote was unanimous. Trading was very volatile following the announcement with the S&P 500 falling sharply as investors digested the prospects of two additional rate hikes. However, stocks pared their losses during the Q&A section of Fed Chair Powell’s press conference. Powell emphasized he still sees a path toward a soft landing, noting that “there is a path to getting inflation back down to 2 percent without having to see the kind of sharp downturn and large losses of employment that we've seen in so many past instances. It's possible.”

Summary of Economic Projections: June’s Summary of Economic Projections (SEP), the so-called “dot-plot” predictions by Fed officials, upwardly revised their expectations for real GDP growth this year to 1.0% from the March projection of 0.4%. The unemployment rate is expected to end the year at 4.1% down from 4.5% in the March SEP. On the inflation front, core PCE inflation is now seen ending the year at 3.9% from the March projection of 3.6%, a sign they are more pessimistic about taming inflation. The majority of FOMC members expect further rate increases, with the dot-plot showing nine members on the Federal Open Market Committee expecting to end 2023 with a benchmark rate in a range between 5.50% to 5.75%; four officials forecast rates of 5.25% to 5.5%; and three predicted they would end above 5.75%. No committee members wrote down a rate cut this year.

Other Central Bank Action: In other central bank news, China's central bank cut a key interest rate for the first time since August as it attempts to stimulate the world's second-largest economy amid its sputtering recovery from the coronavirus pandemic. Beijing is planning several major stimulus programs, including billions of dollars in infrastructure projects. China's economy came back strong after it abruptly abandoned it’s "zero Covid" restrictions late last year, but recent economic data showed that industrial output and retail sales growth slowed sharply in May. Meanwhile, the European Central Bank hiked its benchmark interest rate to the highest level since 2001, warning that the fight to bring down high inflation isn't over. "Are we done? Have we finished the journey? No, we are not at destination," Christine Lagarde, the president of the bank, told reporters in Frankfurt. The ECB raised its deposit rate a quarter percentage point to 3.5% after concluding that inflation was on track to remain too high for too long. The move marked the ECB's eighth straight increase.

The Week Ahead: The focal point of the holiday shortened week will be Fed Chair Powell's semiannual congressional testimony to the House and Senate Committees on Wednesday and Thursday. The testimonies will follow last week's Fed meeting and lawmakers are expected to focus on the forward rate path, following last week’s skip, amidst still-elevated inflation. The data calendar will be light again this week, although housing will be a central theme. On Monday, the NAHB housing market index for June will be released followed by housing starts and building permits on Tuesday and existing home sales on Thursday. Also on Thursday will be the release of the Leading Economic Indicators report for May. Outside of Powell’s two-day testimony, the Fed speaking calendar will be busy with nine speeches on the docket. The earnings calendar will be minimal with just 4 members of the S&P 500 scheduled to release results.

— By Michael Schwager, Chief Market Strategist, Managing Director


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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