Will stock market’s rally continue?

Tuesday saw gains in the US market indices as worries and concerns over the country’s economy, lest it should fall into a recession, eased further. US economic figures indicated that recent data was the worst since February 2023. As a result, there is growing anticipation that the Fed will soon start cutting interest rates.

Disney’s stock decline was a surprise because it happened in spite of its upbeat earnings, Disney’s share recorded the largest decline ever since 2022, which came after the company published negative expectations for streaming slowdown. Disney’s stock decline coincides with the improvement in risk appetite.

Fed, US Monetary Policy

After a turbulent April that saw the S&P 500 drop by about 5.00%, stock markets have recovered to levels they had reached before the recent decline. This shift came in the wake of statements by Jerome Powell, Chairman of the Fed , which led the markets to rule out that there will be any rate hike in the near future and that the first change will not be a hike.

The Fed’s slowing of the pace of QT also contributed to this recovery after reducing the amount that the central bank allows to reach maturity without repurchasing US Treasury bonds and mortgage-backed bonds.

The Fed acknowledged that US economic growth remains “strong,” with gross domestic product recording a good reading of about 1.6% in Q1. Consumer spending also continued to hold up well, achieving an annual rise in the first quarter of 2.5%, which… Lower than market expectations of 3.00%.

Employment Data

The NFP data rose to 175,000 jobs last April, compared to the previous reading, which recorded 315,000 jobs, which was higher than market expectations, which indicated a rise to 243,000 jobs.

Wage growth in the United States declined, which is constant in the annual reading of the average hourly earnings index, which recorded 3.9% last April, compared to the previous reading, which recorded 4.1%, which was less than expectations that indicated 4.00%.

The US unemployment rate rose to 3.9% last April compared to the previous reading of 3.8%, indicating levels higher than market expectations of 3.8%.

With the deterioration of labor market conditions, speculation has crept into the markets that the Fed may reconsider and begin cutting rates next June, which will lead to further decline in the US dollar to the benefit of US stocks.

Obstacles Ahead for Stocks on Wall Street

There are still potential roadblocks that could impede the current progress for the US stock indices, including the remarks by Fed officials that suggest delay of interest rate reduction. Fed’s Neil Kashkari, hinted on Tuesday, that the Fed might not lower interest rates anytime soon and that the present monetary policy is “not tight enough” to combat growing inflation.

In addition, geopolitical concerns in the Middle East continue to have a significant impact on Wall Street’s price movement following the start of Israeli military operations in this city, which has resulted in the displacement of over a million Palestinians from Gaza since last October.
The UN has issued a warning.

“Buy in May and Run Away”, is a well-known Wall Street saying, return will be generally in November. All investors in the global financial markets know it, and it alludes to the key seasonal variables that determine how assets are traded in these markets.

Summer months are when a lot of traders take their vacations in the financial markets, which causes a lack of market liquidity and a drop in the Wall Street indexes.

Despite holidays, investors’ eyes are fixed on screens, watching for any clues that could allay concerns about the direction inflation will take going forward, potential shifts in central bank policy, and the state of the US economy as a whole.