RBC's Gerard Cassidy talks results of Federal Reserve stress test
Gerard Cassidy, RBC Capital Markets, joins 'Closing Bell Overtime' to talk the results of the Federal Reserve's bank stress test.
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Yahoo
2 hours ago
- Yahoo
Rare event could derail S&P 500 record-setting rally
Rare event could derail S&P 500 record-setting rally originally appeared on TheStreet. The stock market has had a record-setting run following President Trump's decision to pause reciprocal tariffs on April 9. The move to de-escalate trade tensions reversed a brutal selloff in the S&P 500 that at its worst had sent the benchmark index tumbling 19%, nearly into bear market drop territory. The market decline was severe enough to trigger oversold readings on most sentiment measures, and many market watchers were savvy enough to recommend buying into the fear. However, far fewer likely expected the rally to persist amid a tidal wave of economic concerns and global uncertainty. Yet, that's precisely what the S&P 500 has done. Rather than backfill gains, it has essentially beelined higher, creating a V-shaped bottom that has surprised many who remain with cash on the sidelines watching, hoping for a chance to buy. The index's advance is remarkable, but stocks don't rise or fall in a straight line, and mounting evidence suggests that the S&P rally could stall soon, especially after one particularly rare signal flashed on Friday. A raging bull market lifted the S&P 500 by over 20% in back-to-back years in 2023 and 2024, including a robust 24% gain last year. The gains were fueled by optimism that the Federal Reserve would switch to market-friendly interest rate cuts, thanks to falling inflation, and abandon the hawkish monetary policy it adopted in 2022 in its war against inflation.A tsunami of artificial intelligence spending also supported gains as companies raced to develop AI chatbots and agentic AI apps. Those bullish arguments looked much flimsier this spring. The Fed cut interest rates in September, November, and December last year; however, it paused additional reductions this year because it feared tariffs would spark price increases. In May, Personal Consumption Expenditures (PCE) price index, excluding energy and food because of their volatility, showed inflation was 2.7%, up from 2.6% in April, and over the Fed's 2% inflation target. The Fed's pause removed some excitement that lower rates would spark business investment and lower interest expenses on variable debt—bad news for corporate sales and earnings growth that contributes to higher stock prices. Similarly, earlier this year, fears mounted that major hyperscalers, including Amazon's AWS, Meta Platforms, Google Cloud, and Microsoft's Azure, would pare back AI spending on servers and AI chips after two years of huge spending growth. Those concerns strengthened after the launch of the Chinese-built Deepseek-R1, a rival to OpenAI's ChatGPT and Google's Gemini, in January. DeepSeek was reportedly built for only $6 million using cheaper, legacy semiconductor chips, rather than Nvidia's latest fastest Blackwell lineup of graphic processing units (GPUs). However, concerns over the Fed and AI spending have decreased since April. Cloud network providers, including hyperscalers, have mostly reinforced their capex plans for this year. Amazon has affirmed a capex run rate of over $100 billion. Meta Platforms increased its planned spend to as much as $72 billion from $65 billion previously. Microsoft confirmed in June that it still plans to spend $80 billion. And Google will likely spend about $75 billion. More Experts Analyst makes bold call on stocks, bonds, and gold TheStreet Stocks & Markets Podcast #8: Common Sense Investing With David Miller Veteran fund manager sends dire message on stocks Meanwhile, while the Fed didn't cut rates again in June, it maintained its closely-watched dot-plot forecast plans to cut rates twice before year-end. Some Fed members have also recently expressed interest in cutting as soon as July, and most believe a Fed cut will likely happen in September, suggesting lower rates are getting closer by the day. With rates potentially heading lower soon and AI spending mostly intact, tariff worries are the last remaining hurdle, and those concerns have also ratcheted back following trade progress with the UK and China. The S&P 500 has clearly climbed the proverbial wall of worry, closing at a new all-time high of 6,173.07 on June 27. The bad news, however, is that the rally has lifted the S&P 500's valuation back toward levels seen when the index made its previous all-time high in February. The S&P 500's forward price to earnings (P/E) ratio is 21.9, up from about 19 in April. In February, it was above 22, according to index's average P/E ratio over the past five and ten years is 19.9 and 18.4, respectively. Unfortunately, it's historically harder to come by gains in the year following a P/E ratio above 22 Clearly, the S&P 500 isn't as cheap as it was in April, and that could create a headwind for stocks, particularly given sentiment measures aren't oversold like they were then. CNN's Fear/Greed Index registered "Extreme Fear" in April, but it's at "Greed" now. The American Association of Individual Investors survey saw bearish outlooks for the coming six months surge to 61.9% in April, the third highest on record and the highest reading since the stock market bottomed in March 2009 during the Great Financial Crisis. Now, bearishness is more neutral at 40%. Increasing investor giddiness may make it harder for the S&P 500 to continue rallying, at least in the short term. This is especially true given that another relatively rare signal, a relative strength index (RSI) (14) reading above 70, flashed a warning on Friday. RSI (14) measures price action over the preceding 14 trading periods and can signal when stocks become overbought and oversold. An RSI above 70 on the S&P 500 signals buyer beware, while a reading below 30, like in April when the RSI on the SPDR S&P 500 ETF Trust () dropped to about 21, suggests selling is overdone. Currently, the RSI on the S&P 500 is 70.2. For perspective, it last exceeded 70 on December 4, before a 4% retreat through January 10. It reached 69.97 on May 19, before a short-and-fast 2.7% drop. Of course, nothing is guaranteed. Stocks can always fall further than anyone expects and remain overbought for a while. John Maynard Keynes famously wrote, "Markets can remain irrational longer than you can remain solvent." Nevertheless, the high RSI reading may suggest that the S&P 500 rally may stall in the coming weeks. In the intermediate or long term, well, gains or losses will likely depend on whether high tariffs fuel inflation, causing the Fed to stay on the sidelines, and whether business spending forecasts stay strong or event could derail S&P 500 record-setting rally first appeared on TheStreet on Jun 28, 2025 This story was originally reported by TheStreet on Jun 28, 2025, where it first appeared. 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Bloomberg
3 hours ago
- Bloomberg
Powell and Lagarde Count Cost of Trump's Turbulence
The global economy's concussion from five months of Donald Trump's presidency is likely to feature when five of the world's leading central bank chiefs discuss monetary policy in public on Tuesday. From tariff-related trade ructions to oil-price gyrations caused by Middle East hostilities, the question of how to handle the fallout from White House decisions may loom large as Federal Reserve chief Jerome Powell speaks on a panel with peers from the euro zone, Japan, South Korea and the UK.
Yahoo
3 hours ago
- Yahoo
Markets are gearing up for rate cuts. Morgan Stanley thinks investors will be disappointed.
Markets have been clamoring for rate cuts, and are eyeing the next two Fed meetings as possible windows. But Morgan Stanley analysts predict that the Fed won't be cutting rates in July or September. The market's view of rate cuts has brightened after recent dovish commentary. Economists at Morgan Stanley think investors are about to be disappointed in the outcomes of the next two Federal Reserve meetings. The bank said in a note on Friday that, despite a recent push from President Donald Trump and recent dovish talk from central bankers, the July and September FOMC meetings will result in no change to borrowing costs. The Fed's cautious approach this year has sparked backlash from President Trump, who has said he believes interest rates need to be cut "by at least 2-3 points." But since the last meeting, other top Fed officials have come out in support of rate cuts in July, with markets cheering the dovish talk. But Morgan Stanley says don't count on it. Their thesis centers around two key points. First, they expect that the economic data released in the short term will remain consistent with the "wait and see approach" displayed by Powell. While the Fed chairman has reaffirmed a need to further assess the impact of tariffs, he has also recently raised concerns regarding the reliability of economic data. "We expect firmer inflation prints showing more signs of a tariff push over the summer," the analysts note, adding that they also expect the coming employment report to be "relatively solid," both of which are factors unlikely to push the Fed toward rate cuts. They also highlight that despite the recent push from Fed governors Christopher Waller and Michelle Bowman, the pro-rate-cut camp is relatively small. "The Summary of Economic Projections (SEP) published last week revealed that there are seven policymakers who expect no cuts this year," the report states. "In fact, the overall tone of Fed speakers this week was much more aligned with Chair Powell's." San Francisco Fed president Mary Daly and New York Fed president John Williams are examples of Fed officials who have taken a more hawkish approach to interest rates. Both have expressed sentiments similar to Powell's. Morgan Stanley added that both Waller and Bowman's statements raised the probability of rate cuts to 20% in July and 60%-90% in September. The higher odds were cheered by markets during the week, with more dovish forecasts helping propel the S&P 500 to a new all-time high. While Morgan Stanley's analysts note uncertainty remains high and that their predictions could be wrong, they maintain that firmer inflation prints will be coming later in the summer and will likely peak in July or August. They add that their forecast is aligned with Powell's expectations, which include tariffs pushing prices higher in the coming months. Read the original article on Business Insider
