Market Snapshot: Will the Federal Reserve kill the stock-market bounce?

by | Jul 23, 2022 | Stock Market

A summer rebound is stirring hopes the bear market in U.S. stocks has seen its lows, but a meeting of Federal Reserve policy makers this coming week might test the nerves of would-be bulls. “I expect we will continue to see market volatility until investors have seen more convincing evidence that this period of Fed hawkishness is behind us, and I do not expect that to be the message” when central bankers conclude a two-day meeting on July 27, said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a phone interview.

Disappointing results from social-media platform Snap Inc.
trimmed a weekly rise in stocks on Friday, but the benchmark indexes still saw healthy gains. The S&P 500
rose 2.6% in the past week to end near 3,962 after pushing above the 4,000 threshold early Friday for the first time since June 9. The Dow Jones Industrial Average
logged a weekly gain of 2%, while the Nasdaq Composite
advanced 3.3%. The bounce this week lifted the indexes off 2022 lows after the S&P 500 sank to a finish of 3,666.67 on June 16. See: Is the stock-market bottom in? What the pros say after S&P 500 tests 4,000 The rebound has been fueled in part by a dynamic that’s seen investors treat bad news on the economic front as good news for stocks, said James Reilly, an economist at Capital Economics, in a Friday note. That may sound strange, but it likely reflects, in part, a view among investors that weaker economic data will lead the Fed to raise interest rates less than previously thought, Reilly wrote. There’s evidence for that in market-based expectations for rate increases, which have been pared back lately (see chart below), a development that has provided support for equity valuations, he said.

Capital Economics

Market expectations are for the Fed to deliver a 75 basis point interest rate increase on Wed …

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