Inside Markets — Fed Rate Expectations

The pullback in bank stocks and poor market internals (SPX -1.4% yesterday) are near-term dynamics caused by the repricing of Fed rate expectations.  The OIS forward curve is now pricing in just 40bp of cuts in ’25 (down from ~75bp two weeks ago) because yesterday’s CPI report was enough to keep the Fed on hold considering a 4.1% Unemployment Rate (June BLS Report).  In the near-term, the repricing of Fed rate expectations should take some air out of the SPX as various sectors and industries make their way back to oversold levels.  The process may only last one or two weeks as fund flows turn decidedly positive the week of July 28.  The August 1 trade deadline may not be extended, but negotiations will continue, and the SPX will likely climb this wall of worry.