(Bloomberg) — The stock market hovered near its all-time high as big tech rebounded, with investors also positioning for Wednesday’s Federal Reserve decision and key inflation data.
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As traders braced for added volatility ahead of macroeconomic catalysts, uncertainties across the Atlantic prevented bigger gains in US equities. European shares slid after French President Emmanuel Macron called a legislative vote in the wake of a crushing defeat in Parliament elections. Yields on France’s 10-year bonds hit their highest this year, while the nation’s top banks tumbled. The euro led losses in developed-world currencies.
Wall Street’s most-prominent trading desks from JPMorgan Chase & Co. to Citigroup Inc. are urging investors prepare for a stock market jolt after Wednesday’s consumer price index and the Fed’s rate decision.
The Fed is widely expected to hold borrowing costs steady, but there’s less certainty on officials’ rate projections. A 41% plurality of economists expect them to signal two cuts in the closely watched “dot plot,” while an equal number expect the forecasts to show just one or no cuts at all.
“The interest-rate guessing game goes on,” said Chris Larkin at E*Trade from Morgan Stanley. “Even the friendliest inflation numbers probably won’t push the Fed to act any sooner than September.”
The S&P 500 hovered near 5,360. Nvidia Corp. began trading after a 10-for-one stock split. Apple Inc. unveiled the latest operating systems for the iPhone, iPad and Mac at the company’s annual Worldwide Developers Conference. GameStop Corp. plunged after the video-game retailer lost about $6.4 billion in market value on Friday.
Treasuries edged lower after a weak $58 billion three-year auction. The dollar gained.
“The release of a new ‘dot plot’ outlining Fed projections for the path of rates will be the top focus,” said Jason Pride and Michael Reynolds at Glenmede. “For fixed income investors, the Fed’s more patient higher-for-longer approach is likely to keep bond yields elevated as inflationary pressures remain.”
After Friday’s solid jobs report, traders pulled back on rate-cut expectations, pricing in the first full 25 basis points of easing in December — rather than November.
The options market is betting the S&P 500 will move 1.3% to 1.4% in either direction by Friday, based on the price of at-the-money straddles that expire that day, according to Andrew Tyler, head of US market Intelligence on JPMorgan Chase’s trading desk.
Meanwhile, investors are preparing for a Fed day stock-market move that would be the largest since March 2023, according to Stuart Kaiser, Citigroup’s head of US equity trading strategy.
Investors remain too optimistic about the timing of a Fed-rate cut, according to RBC Capital Markets strategists led by Lori Calvasina.
The benchmark index could drop to 4,900 points if the Fed holds rates at current levels, inflation proves stickier than expected and the 10-year Treasury yield remains below 5%, the strategists wrote in a note.
If the central bank were to cut rates as expected, but earnings came in below projections, the S&P 500 would trade around 5,100 points — about 5% lower than current levels, Calvasina said. And the third — bearish — scenario sees the benchmark slumping almost 16% if stubborn inflation results in Fed rate hikes.
“The equity market has had a terrific year, but there is a current pause in the rally as the Fed comes into question,” said David Donabedian at CIBC Private Wealth US. “There is a real chance if the economy does not slow down there will be no rate cut this year.”
More than 60% of respondents in the latest MLIV Pulse survey expect US stocks to outperform Treasuries on a volatility-adjusted basis next month.
That reading has been higher only three times in the history of the survey going back to August 2022.
Corporate Highlights:
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Activist Elliott Investment Management called for sweeping changes to Southwest Airlines Co.’s leadership to reverse what it sees as years of underperformance by one of the biggest US carriers.
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The US Supreme Court agreed to consider killing a multibillion-dollar shareholder lawsuit that accuses Meta Platforms Inc. of misleading investors about the data-harvesting scandal involving political consulting firm Cambridge Analytica.
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Advanced Micro Devices Inc. was cut at Morgan Stanley, which said investor expectations for the chipmaker’s AI business “seem too high.”
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KKR & Co., CrowdStrike Holdings Inc. and GoDaddy Inc. will join the S&P 500 as part of its latest quarterly weighting change.
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Noble Corp., the world’s biggest offshore oil-rig contractor by market value, agreed to buy its smaller rival Diamond Offshore Drilling Inc. in a deal valued at $1.6 billion.
Key events this week:
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China PPI, CPI, Wednesday
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Germany CPI, Wednesday
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US CPI, Fed rate decision, Wednesday
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G-7 leaders summit, June 13-15
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Eurozone industrial production, Thursday
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US PPI, initial jobless claims, Thursday
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Tesla annual meeting, Thursday
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New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday
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Bank of Japan’s monetary policy decision, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
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US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.2% as of 2 p.m. New York time
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The Nasdaq 100 rose 0.4%
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The Dow Jones Industrial Average rose 0.1%
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The MSCI World Index rose 0.1%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro fell 0.4% to $1.0759
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The British pound rose 0.1% to $1.2736
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The Japanese yen fell 0.1% to 156.98 per dollar
Cryptocurrencies
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Bitcoin rose 0.4% to $69,950.54
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Ether fell 0.2% to $3,693.19
Bonds
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The yield on 10-year Treasuries advanced four basis points to 4.47%
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Germany’s 10-year yield advanced five basis points to 2.67%
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Britain’s 10-year yield advanced six basis points to 4.32%
Commodities
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West Texas Intermediate crude rose 2.8% to $77.66 a barrel
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Spot gold rose 0.8% to $2,313.07 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland, Catherine Bosley, Andre Janse van Vuuren, Selcuk Gokoluk, Jessica Menton, Kasia Klimasinska and Felice Maranz.
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