Market Watch: June 30

On Wednesday, North American equity markets finished mixed. Investors parsed through comments by U.S. Federal Reserve Board (Fed) Chair Jerome Powell who indicated more rate increases are likely, but that the U.S. may avoid a recession. In Europe, bank loans to households increased by 2.1 per cent year-over-year in May, which was the slowest pace of annual growth since 2016. The Dow lost 74 points by the close, the S&P 500 went down by two points, and the Nasdaq increased by 36 points. In Canada, the TSX saw an 86-point increase, led by the Consumer Staples sector.

On Thursday, North American equity markets were mixed. Better-than-estimated growth in the U.S. offset concerns about the Fed raising rates further. A third and final reading revealed the U.S. economy expanded at an annualized pace of two per cent over the first quarter of 2023. Optimism among small business owners in Canada softened in June, its first decline in eight months. By the close, the Dow increased by 270 points, the S&P 500 was up by 20 points, and the Nasdaq went down slightly by 0.4 points. In Canada, the TSX increased by 94 points, led by the Health Care sector.

North American Indexes end the week high

For the four trading days covered in this report, the Dow increased by 395 points to close at 34,122, the S&P 500 went up 48 points to settle at 4,396, and the tech-heavy Nasdaq gained 99 points to close at 13,591. In Canada, the TSX went up by 495 points to end at 19,913.

Strategy

Fed could hike two more times this year, according to Chair Powell

“A strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year,” said U.S. Federal Reserve Chair Jerome Powell at a central banking summit yesterday.

Each hike is equivalent to 25 bps. The Fed chief added that inflation is far too high and the process of returning it to the two per cent target has “a long way to go.” The remarks harken back to his comments two weeks ago at the Fed’s latest policy meeting when borrowing costs were left unchanged. Although Powell said most officials share his view, some central bankers are less hawkish.

Atlanta Fed President Raphael Bostic has urged patience and to allow the cumulative tightening that has occurred so far to work its way into the economy. According to Bostic, officials must be wary of over-tightening as they near the end of the tightening cycle. Raising policy rates more than needed could lead to unnecessary job losses. Bostic does not vote on policy this year.

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Market Watch: June 30

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