Hop, skip, and a jump
With the Federal Reserve widely expected to keep its key rate unchanged today – which stands at 5.0%-5.25% following 10 consecutive hikes – investors will focus on the central bankers’ statement for any inkling of guidance about its intentions at the July meeting. At the last gathering, the FOMC kept the door open for a rate increase at future meetings when it said “additional policy firming may be appropriate to return inflation to 2% over time.” Any changes to that wording will let markets know which way the Fed may be leaning – toward another “skip” to assess data or toward resuming a path of tightening.
Snapshot: If the FOMC keeps rates unchanged at 2 PM ET, look to see if any members voted to raise rates this month, which can give insight into the debate that occurred at the meeting. Fed policymakers will also provide their expectations for inflation, growth, unemployment and where they see rates going over the next couple of years in the Summary of Economic Projections. In March, the central bankers’ median projection was 5.1% at the end of 2023, unchanged from the December 2022 meeting, while the median projection for 2024 year-end was 4.3%, up from 4.1% in the prior dot plot.
“Mixed economic signals have made the Federal Reserve’s job much more difficult,” writes SA analyst Victor Li, especially after headline CPI data for May came in softer than expected. “The labor market continues to show resilience, with an unemployment rate of 3.7% hovering near 50-year lows and 339,000 net jobs created in April. Additionally, job vacancy rates have increased, with more than 1.5 jobs available for every unemployed person, and the consumer confidence numbers have increased in 8 of the last 10 months. Unfortunately, overall GDP growth has slowed from the previous two quarters; however, the annualized growth rate of 1.6% is still higher than what was seen in the last quarter of 2022.”
Market angle: “Investors have been waiting most of this year for the Federal Reserve to ‘pivot’ from its tight monetary stance,” adds SA analyst John Mason. “Now, investors in the stock market seem to be waiting for the Federal Reserve to ‘pause’ in its efforts to increase its policy rate of interest.” Mason also discusses the recent S&P 500 bull market rally in Federal Reserve Watch: Question Marks, citing an indication of how “mixed up” the U.S. economy is given that only a “handful of companies have been posting outsized gains over the past few months.” (46 comments)
Peak in sight?
Global oil demand is expected to slow “almost to a halt” within five years, according to the International Energy Agency, as higher prices and supply concerns will likely speed up the shift to clean energy sources and electric vehicles. The use of gasoline for vehicles is set to decline after 2026, pushing EV stocks higher in premarket trading, including Tesla (TSLA), Nikola (NKLA) and Chinese EV makers. As for crude prices, Investing Group Leader HFIR believes the oil market is at an important inflection point. (34 comments)
Trouble brewing
Anheuser-Busch InBev’s (BUD) Bud Light has lost its crown as the top selling beer in the U.S. to Constellation Brands’ (STZ) Modelo Especial. This follows a boycott of the Bud Light brand over a controversial ad campaign featuring transgender influencer Dylan Mulvaney. Sales of other AB InBev brands have also been hit, including Budweiser and Michelob Ultra. Investing Group Leader Quad 7 Capital believes AB InBev is a risky investment, even if Bud Light accounts for only a fraction of sales. (29 comments)
AI regulation
Google (GOOG, GOOGL) has called on the U.S. government to delegate oversight of AI implementation across sectors, rather than setting up a new regulatory body. “At the national level, we support a hub-and-spoke approach – with a central agency like the National Institute of Standards and Technology informing sectoral regulators overseeing AI implementation – rather than a ‘Department of AI’,” the tech giant declared. This contrasts with OpenAI CEO Sam Altman’s proposal of establishing a separate AI regulator. OpenAI is backed by Microsoft (MSFT), which poured billions of dollars into the ChatGPT maker earlier this year. (1 comment)
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