From Barron's Stocks to Watch:
Stocks are getting pummeled today, and while it would be easy to blame inflation data and hawkish comments from Fed governors for the weakness, I’m not sure I buy it.
Yes, the S&P 500 dropped 0.9% to 2,047.21, while the Dow Jones Industrial Average fell 180.73 points, or 1%, to 17,529.98, and the Nasdaq Composite slumped 1.3% to 4,715.73.
But is inflation really a worry? As my colleague Amey Stone wrote this morning about the Consumer Price Index, which rose 0.4% in April from the previous month, “there’s a whiff of inflation in the air, but not much more than that.” And as for the Fed governors, well bog Atlanta Fed President Dennis Lockhart, a non-voting member of the Fed, and San Francisco Fed President John Williams agreed that two to three rate hikes would be appropriate this year. Still, it’s Janet Yellen’s Fed, and two outliers probably won’t make policy budge. The Lindsey Group’s Peter Boockvar explains:
While I continue to believe what Fed President’s think and say is irrelevant in terms of dictating what Yellen, Fischer, Dudley and Brainard want (Powell and Tarullo don’t talk much) and choose to do on rates, the drumbeat of Fed President comments seems to be accumulating in its impact on the Treasury market…
What was essentially NO CHANCE of a rate hike priced in at the June meeting yesterday, is now a SLIGHT CHANCE as the July fed funds futures contract has the odds at 14% vs 4% yesterday for that meeting. The 2 yr note yield is quietly rising again and now has jumped by 7 bps this week alone to the highest level in three weeks. The US dollar on the other hand is not responding much as its down a hair this week and while the S&P’s are down 16 pts as of this writing, they are just losing yesterday’s gains. I personally don’t see the Fed rolling the dice on a rate hike in June just a week before the UK EU vote but they can certainly speak strongly that if there is calm after the vote (either following a Remain or Leave), a rate hike may soon follow.
The most important part of that note might be the comment that the S&P 500 is just losing yesterday’s gains, which just so happened to be as inexplicable as today’s....MOREWell there you go.