Trading has been choppy and range-bound in recent weeks, leaving investors with a seasick feeling. Don’t expect smoother sailing just yet.
Despite no shortage of headlines and hand-wringing, the stock market hasn’t been doing much of anything. The
S&P 500 index
has been flat over the past two months. This past week’s inflation and retail sales data, tech-company drama, and a parade of industry conferences did little to change that. The S&P 500 slipped 0.16%, the
Dow Jones Industrial Average
ticked up 0.12%, and the
Nasdaq Composite
lost 0.39%.
Even this coming week’s meeting of the Federal Open Market Committee is unlikely to help the market pick a direction. A data-dependent Federal Reserve will meet on Tuesday and Wednesday to contemplate its next monetary-policy move and offer projections for interest rates, economic growth, and inflation. The futures market is pricing no change in rates this time.
“The data flow since the July meeting largely supports a wait-and-see approach,” wrote Michael Gapen, Bank of America’s chief U.S. economist. “Recent data should leave the Fed encouraged by ongoing disinflation but concerned about reacceleration in inflation because of the strength in activity.”
What the Fed makes of the longer-term trajectory, however, is still up in the air. That will put the focus on the Summary of Economic Projections—the so-called dot plot. Higher energy prices are fueling inflation again, while economic growth continues to surprise to the upside and unemployment remains very low. The Fed’s fight against inflation doesn’t appear likely to be over by year end, so where the median dot for interest rates in 2024 lands on Wednesday will also get plenty of attention.
For now, futures pricing calls for about a percentage point’s worth of rate cuts by the end of next year—a forecast that could move depending on Fed officials’ collective prediction this coming week.
What about stocks for the balance of the year? Deutsche Bank Securities Chief U.S. Equity and Global Strategist Binky Chadha expects the S&P 500 to experience “a continued muddle through as growth surprises to the upside but the cloud of uncertainty remains, supporting a choppy grind up to 4750.” The index closed at 4450 on Friday.
“A continued muddle through” sounds like an appropriate way to describe the near-term path for the market. Stocks are pricey, but not egregiously so, and earnings growth is expected to be, well, fine. The economic data can appear both good and bad, depending on how and where you look. And the Fed’s next moves can be interpreted through a bullish or bearish lens—rate hikes are almost done, but cuts remain far away.
It will take more authoritative proof of a recession or soft landing ahead to put stocks and bonds in definitive up or down trends. That evidence may still be months away, so don’t put the Dramamine away just yet.
Write to Nicholas Jasinski at [email protected]
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