Last week’s stunning 5% advance in the stock market is likely to have one consequence that credit-starved sensitive businesses won’t like: It has eroded the likelihood of further cuts in interest rates by the Federal Reserve when its Open Market Committee meets next week.
Despite a rise in joblessness, decline in housing activity and spate of bankruptcies, the futures markets and even dovish Fed governors are now expecting the central bank to stand pat for the first time in six months.
This is something of a shocker when you consider that the odds of a cut of a half percentage point were extremely high just two weeks ago. Now traders who bet on the likelihood of cuts don’t even consider it likely that the Fed will cut by a quarter of a percentage point. If the economy really is on solid ground now, just because stocks are up, it sure will be a surprise to businesses who are seeing more dramatic sales and profit declines than they can recall in years. We’ll learn more on Tuesday and Thursday mornings when existing and new-home sales data is released, and on Thursday afternoon when continuing jobless claims for April are released, but already the news from corporate America is grim.
Read More...
