Friday's Market Minute: Bearish Sentiment Is Overdone

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Aggressive interest rate movement and the prospect of even higher interest rates has done a lot of overall damage to stocks this year. Just weeks after the Fed implemented its first half-point rate rise in 22 years, swift monetary tightening is expected continue through the summer. The market is currently pricing two more half-point rate rises at its upcoming meetings in June and July.

The overarching concern among economists is that the Fed’s efforts to contain inflation will incite painful job losses and possibly a recession. Downside risks to growth amid a faster monetary tightening has divided investors with either recession calls, or that perhaps the Fed might even pause their interest rate hikes in September. Recent market activity implies investors have hope for a less aggressive tightening campaign by the Fed after economic data suggests the economy is softening and that inflation is cooling. 

Equity markets in the month of May demonstrated a sense a reset, as investors factored in the strong chance that the Fed will be unable to tighten as much as it wants. If the economy demonstrates cooler labor demand from the labor market report, this could slightly ease some inflation worries.

Although the economy may not see significant deceleration with inflation prints, expectations are growing that the Fed won’t maintain an aggressive inflation rate hiking campaign. With that said, bearish sentiment appears overdone, and corporate profit warnings from mega-caps like Microsoft should mostly be already priced in. It appears stocks may eventually push higher this summer as consumer economic activity, inflation, and fear of the Fed moderates.

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.