There is surprisingly little good news lurking in the stock market

There is surprisingly little good news lurking in the stock market

Investors are grappling with a painful reality check: The Federal Reserve is unlikely to cut interest rates anytime soon.

That, at least temporarily, halted 2024’s gangbusters stock rally and dampened sentiment on Wall Street. Traders worry that the increased rates will keep borrowing costs sky-high for consumers, squeeze corporate profits and weigh on markets.

The good news? History suggests that higher-for-longer rates don’t translate into painful losses for portfolios, although there may not be much upside in the short term for stocks.

The benchmark S&P 500 index has added about 13% on average during the Fed’s pause, according to LPL Financial data compiled by CNN that spans about 35 years and six stretches when rates have been on hold. The S&P 500 has gained 14% in the current period, from the last date the Fed raised rates in July 2023 through Thursday’s close.

“Long pauses are usually good for stocks,” wrote Jeff Buchbinder, chief equity strategist at LPL Financial, in a note Tuesday. “It’s when the Fed is forced to cut because of economic weakness that stocks tend to sell off — not in the environment we have today.”

The US economy remains remarkably resilient, even after the Fed began an aggressive battle against misguided inflation that drove rates to their highest levels in decades. The labor market remains strong, consumers continue to spend and stocks hit repeat record highs.

That economic resilience, coupled with months of data showing sticky inflation, has even fueled fears that the Fed will raise rates again. Chairman Jerome Powell earlier this month allayed those concerns but warned that the central bank would need to see inflation fall further before easing policy.

“So far this year, the data does not give us greater confidence. In particular, as I mentioned earlier, readings on inflation have exceeded expectations,” Powell said at a press conference following the Federal Open Market Committee meeting.

Some economists say that the central bank, which has made three rate cuts for 2024, remains on track to cut rates at least once or twice this year. Traders expect the Fed to start cutting rates in the fall, according to the CME FedWatch Tool.

April’s jobs report is a welcome sign that the labor market is cooling without a crater. The labor market added just 175,000 positions last month, marking the lowest number since October 2023 and a sharp decline from the upwardly revised 315,000 jobs in March. April job gains were in line with pre-pandemic levels and the neutral rate of job growth needed to keep pace with population growth.

First-time applications for jobless benefits rose last week to 231,000, the highest level since last August, in another sign that the labor market is cooling.

Annual wage gains, a potential inflation booster closely watched by the Fed, were at their lowest level since May 2021. Weakness in both wage gains and wage growth last month supported hopes that the Fed could reduce inflation without triggering a recession, according to some investors.

“The case for a rate cut is getting stronger,” wrote David Russell, head of global market strategy at TradeStation, in a note earlier this month. “Goldilocks may be making a comeback.”

Treasury launches ‘Project Fortress,’ an alliance with banks against hackers
The US federal government is working with Wall Street on a new cybersecurity pact aimed at defending the financial system from nightmare attacks and preventing hackers from trying, according to a letter sent to bank CEOs by a senior Treasury official and seen by CNN.

The new public-private partnership, dubbed Project Fortress, underscores the real danger US officials and bank executives believe cyberattacks pose to the economy, my colleague Matt Egan reports.

“The message to bad actors who want to use cyberspace to go after US financial institutions is this: We’re watching, we’re protecting the system and we’re going after you if you go after the US financial system,” a US official told CNN.

Project Fortress includes safeguards such as a new cyber hygiene tool that automatically scans companies for vulnerabilities and new automated threat feeds, according to the letter, which was sent to a bank trade group earlier this week.

But Project Fortress isn’t just about playing defense.

Treasury Deputy Secretary Wally Adeyemo said in a surat that the pact also includes “offensive actions” that use the Treasury’s national security tools as well as US law enforcement to “make it clear to our adversaries that they will face consequences for their attacks.”

The country’s security apparatus includes deploying a Treasury sanctions force, a person familiar with the matter told CNN.

Asia’s most powerful billionaires are increasingly drawn into the world’s biggest election
Two of the richest businessmen on the planet are increasingly embroiled in India’s increasingly divisive election campaign, my colleague Diksha Madhok reports.

The world’s most populous country is in the midst of a general election in which Prime Minister Narendra Modi is widely expected to secure a rare third consecutive term.

Modi ran his economic record over the past 10 years, a period of robust growth for India, as well as its two most famous billionaires: Mukesh Ambani and Gautam Adani.

Likened to the industrialists who helped build America’s “Gilded Age”, the two men are considered vocal champions of Modi and their perceived closeness has been the subject of intense criticism by rival politicians.

But at an election rally on Wednesday, Modi appeared to accuse his main political opponent of accepting money from Ambani, the chairman of India’s most valuable private company Reliance Industries, and Gautam Adani, founder of the port-to-energy conglomerate Adani Group.

“Why did Shahzade Ji stop talking about Ambani and Adani in this election all of a sudden? People are smelling a secret deal,” Modi said at X, where he posted a video of his speech. Shahzade, or prince, is a widely understood reference to Rahul Gandhi, the longtime face of the main opposition Indian National Congress party.

“How much money have you taken from Ambani and Adani?” he said at the gathering.