Fed & Treasury Nearly Hijack Markets
Equities rallied last week, but saw downward pressure on Friday after debt ceiling talks stalled and the Treasury Secretary's comments on the banking situation.
A report came out that Treasury Secretary Yellen had informed a group of large bank CEOs to expect more bank mergers this year. That pushed financial stocks lower on Friday after they had seen more than 3% returns earlier in the week. Meanwhile, Fed speakers gave hints that perhaps the Fed is not done hiking rates. Fed futures have shifted over the past couple of weeks and now show only a 79% probability of no rate hike next month.
Fed speakers last week continued the rhetoric that inflation was “sticky” despite data showing the individual components of CPI moving lower.
Meanwhile, Retail Sales for April, while disappointing expectations, came in nearly 3 times higher than the previous month. Jobless Claims were lower than expected and lower month-over-month. The current estimate of 2nd quarter GDP, according to the Atlanta Fed is +2.9%, with Consumer Spending having moved higher. Equities have shown a historical pattern of moving higher near the end of Fed rate hikes. It will be interesting to see if equities can build on some of the momentum gained last week. With Debt Ceiling talks and Fed minutes leading headlines this week, expect investor uneasiness.
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