Wall St Week Ahead: Fed outlook is in focus as US stock rally picks-up speed
Investors are hoping that the Federal Reserve will continue to lower interest rates over the next few months.
The rally has erased the fall caused by President Donald Trump’s tariffs. S&P 500 has not changed much since April 2, when Trump announced his "Liberation Day tariffs" and sent the stock market into a tailspin.
The Fed's monetary policy statement is expected to remain unchanged on Wednesday. However, the market prices indicate that the central banks could reduce borrowing rates as early as June. This expectation has dimmed after Friday's strong U.S. jobs report.
Dominic Pappalardo is the chief multi-assets strategist at Morningstar Wealth. He said that "the Fed is one of few levers which can be pulled quickly to support market activity." If they begin to show signs that inflation worries are diminishing, it could indicate that they are getting closer to a rate cut. I believe that the markets will welcome this.
Trump's tariffs are a major factor in central bank policy decisions. Officials weigh concerns about an economic downturn with fears that tariffs could drive inflation up.
This week, data showed that the U.S. economic contraction in the first quarter was the first since 2022. However, many analysts dismissed the report and said the weakness had been driven by an increase in imports, as businesses tried to avoid tariffs which would have increased costs.
The Fed's benchmark rate has remained at 4.25-4.5% in 2025, after a reduction of 1 percentage point by the Fed last year. According to LSEG, Fed funds futures factor in at least three additional 25-basis points cuts by December. After data released on Friday, which showed that U.S. employment rose by 177,000 more jobs than expected in April, the amount of easing anticipated this year has been modestly reduced.
Trump has criticized Fed chair Jerome Powell for saying that the Fed would wait until more data is available on the direction of the economy before changing rates.
Last month, Trump hinted that he might try to fire Powell. This sparked market concerns about the Fed's independent. Trump appeared to retreat later.
Angelo Kourkafas is a senior investment strategist with Edward Jones. He said that Powell might continue to sound "hawkish" at the meeting next week to counter the narrative that the Fed will be influenced the White House.
The S&P 500 is still down 8%, even after eight sessions of gains. It's on track to have a ninth session on Friday. The benchmark index fell nearly 20% from its February record high last month.
In general, corporate results have exceeded expectations in the last few weeks. LSEG IBES reports that, with two-thirds reporting, the average earnings of S&P 500 companies are 7.4% higher than expected. This compares to a long-term trend of 4.3%.
After their results on Thursday, shares of Facebook and Microsoft parent Meta Platforms rose. This helped boost equity indexes. Uber Technologies, Walt Disney, and ConocoPhillips are among the companies that will report results in the next week.
Investors will continue to focus on trade developments. They say the rebound in the stock market was due to optimism that tensions are easing and deals with other nations are progressing. Trump paused the hefty import duties on many countries on April 9, while the U.S. negotiates other countries. Stocks soared after that move.
Scott Wren is a senior global market analyst at Wells Fargo Investment Institute. He said, "The market expects solid deals to be signed with some of our trade partners."
The market is expecting something and it's now time to put the rubber on the road.
(source: Reuters)
