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There’s surprising good news lurking in the stock market
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CNN New York –
Investors face a painful reality check: The Federal Reserve is unlikely to cut interest rates anytime soon.
This has, at least temporarily, stalled the strong 2024 stock rally and lowered morale on Wall Street. Investors worry that high rates will keep financing costs painfully high for consumers, reduce corporate profits and weigh on the market.
The good news? History suggests that higher rates over longer periods don’t translate into painful losses for portfolios, even if there isn’t much more short-term upside for stocks.
The benchmark S&P 500 index rose about 13% on average during Fed pause periods, according to LPL Financial data compiled by CNN spanning about 35 years and six periods in which rates remained unchanged. The S&P 500 has gained 14% during the current period from the Fed’s last rate hike in July 2023 through Thursday’s close.
“Long pauses are typically good for stocks,” wrote Jeff Buchbinder, chief equity strategist at LPL Financial, in a Tuesday note. “It is when the Fed is forced to cut due to economic weakness that stocks tend to sell off – not in the environment we are in today.”
The US economy has remained remarkably resilient even after the Fed began an aggressive battle against wayward inflation that drove rates to their highest level in decades. The job market remained strong, consumers continued to spend and stocks recorded repeated all-time highs.
That economic resilience, coupled with months of data showing sticky inflation, even raised concerns that the Fed would raise rates again. President Jerome Powell earlier this month calmed these fears but warned that the central bank needs to see inflation fall further before easing policy.
“So far this year, the data has not given us this greater confidence. In particular, as I noted previously, inflation readings came in above expectations,” Powell said at the Federal Open Market Committee post-meeting press conference.
Some economists say the central bank, which has planned three rate cuts for 2024, is still on track to cut rates at least once or twice this year. Traders expect the Fed to start cutting rates in the fall, according to the CME FedWatch tool.
The April jobs report It was a welcome sign that the job market is cooling without collapsing. The job market added just 175,000 jobs last month, marking its lowest record since October 2023 and a sharp slowdown from the upwardly revised 315,000 jobs. added in March. April’s job gains are in line with pre-pandemic levels and the neutral rate of job growth needed to keep up with population growth.
First unemployment benefit claims rose last week to 231,000the highest level since last August, in yet another sign that the job market is cooling.
Annual wage gains, a potential inflation booster closely watched by the Fed, are at their lowest level since May 2021. The slowdown in wage gains and payroll growth last month supports hopes that the Fed can contain inflation without triggering a recession, according to some investors.
“The case for rate cuts has gotten a little stronger,” wrote David Russell, global head of market strategy at TradeStation, in a note earlier this month. “Goldilocks may be back.”
The U.S. federal government is partnering with Wall Street in a new cybersecurity alliance that aims to defend the financial system from a nightmare attack and dissuade hackers from even trying, according to a letter sent to bank CEOs by a senior Treasury official and seen by CNN.
The new public-private partnership, dubbed Project Fortress, underscores the real danger that U.S. officials and banking executives believe cyberattacks pose to the economy, my colleague Matt Egan reports.
“The message to bad actors who want to use cyberspace to go after U.S. financial institutions is: we are watching, we are protecting the system, and we will come after you if you go after the U.S. financial system,” a U.S. official told CNN .
Project Fortress includes protective measures such as a new cyber hygiene tool that automatically scans companies for vulnerabilities and a new automated threat feed, according to the letter, which was sent to banking trade groups earlier this week.
But Project Fortress isn’t just about playing defense.
Deputy Secretary of the Treasury Wally Adeyemo said in the letter that the alliance also includes “offensive actions” that employ Treasury’s national security tools as well as U.S. law enforcement to “make clear to our adversaries that they will face the consequences of their attacks.”
Those national security tools include deploying Treasury’s sanctions team, a person familiar with the matter told CNN.
Two of the planet’s richest businesspeople are getting involved in India’s increasingly controversial election campaign, my colleague Diksha Madhok reports.
The world’s most populous nation is in the midst of a mammoth election in which Prime Minister Narendra Modi is expected to secure a rare third consecutive term.
Modi follows his economic record over the last 10 years, a period of robust growth for India, as well as for its two most famous billionaires: Mukesh Ambani and Gautam Adani.
Compared to the industrialists who helped build America’s “Golden Age,” both men are considered vocal supporters of Modi and their apparent closeness has been the subject of intense criticism from rival politicians.
But at an election rally on Wednesday, Modi appeared to accuse his main political opponent of accepting money from Ambani, chairman of India’s most valuable private company, Reliance Industries, and Gautam Adani, founder of the ports and energy conglomerate the Adani.
“Why did Shahzade Ji suddenly stop talking about Ambani and Adani in this election? People are sniffing a secret deal,” Modi said on X, where he posted a video of his speech. Shahzade, or prince, is a widely known reference to Rahul Gandhi, the longtime face of the main opposition party, the Indian National Congress.
“How much money did you take from Ambani and Adani?” he said at the rally.