Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.

The Federal Reserve decided on Wednesday to maintain interest rates at the highest level in 23 years, while reducing expectations for interest rate cuts this year from three to one. At the end of the two-day policy meeting, the committee voted to keep the benchmark interest rate in the range of 5.25%-5.50%.

The federal fund rate has remained at this level since July 2023. The forecast for rate cuts this year is very close. Eight officials expected two rate cuts this year, while seven officials expected only one; four officials expected no rate cuts this year, up from two before, further indicating the hawkish stance of central bank officials.

After the Fed hinted at potentially cutting rates once in 2024, market reactions were mixed. Although the US economic outlook did not seem significantly changed, Wall Street analysts held different views. This article delves into the market experts' interpretations of the Federal Reserve's policy decision and its potential impact on the stock market.

Bob Michele and Mohamed El-Erian are said to hold a pessimistic view of the Fed's policy outlook. Michele, the global head of fixed income at JPMorgan Asset Management, was blunt: 'This tells me that the bond market is in the hands of us professionals. I don't understand the Fed's thinking, am unclear about the data on which they're basing it, and am not sure what actions they will take.'

In response to the Fed's policy decision, Michele stated that he could evaluate the reasonable value of the benchmark interest rate by analyzing economic conditions and supply and demand dynamics. However, his assessment of the central bank's decision was:'This is a confused Fed.' Despite Chairman Powell's numerous refutations of this view during the press conference, Michele and El-Erian both believe that there is a strong possibility of a first rate cut in September, given the balance of economic risks.

Supporting their view is the Consumer Price Index (CPI) released earlier that day, which even earned praise from James Bullard, former president of the Federal Reserve Bank of St. Louis and a well-known hawk, as a 'perfect anti-inflation' signal.

In contrast, Jeffrey Gundlach, CEO of DoubleLine Capital and known as the 'new bond king,' said on Wednesday that the Fed may not lower rates by the end of 2024.

In an interview, Gundlach said he was not very confident that there would be a rate cut this year. Gundlach did expect inflation to decrease, but he pointed out, 'I almost feel like the Fed is getting into a reactionary mode. If data starts to become unstable, their reaction will be more severe and rapid.'

Gundlach said that the Fed's continued struggle with inflation pressures or events that affect inflation could lead to Powell making statements in the future that may indicate a rate hike.

In addition, BlackRock's Jeff Rosenberg commented after Powell's response, 'Early CPI data set the tone for a dove-leaning press conference.' However, this was not conveyed by Powell or the Fed's Summary of Economic Projections (SEP), which has raised doubts among investors about the central bank's policy stance. Despite the confusion, the stock market briefly hit an intraday high after the Fed announced its rate cut decision, although it has since fallen back.

Elian, Chief Economist of Allianz Group and columnist for Bloomberg Opinion, noted that the Fed's policy stance seemed too hard-line if interpreted literally from the SEP and statement. He added that it was reasonable for investors to be skeptical of the Fed's announcement: 'I don't think this fully reflects the latest data.'

Michele and El-Erian believe that the Fed's dot plot may not fully reflect the optimistic sentiment in the CPI data. When asked whether FOMC officials would modify the dot plot, Powell acknowledged this possibility. He said:'Some people like it, some people don't like it, and most people don't know. I won't go into details, but you have the ability. To some extent, the SEP does indeed reflect the data we received today, and you can reflect it within a day.'

According to reports, the Fed's dot plot indicates that it expects one rate cut in 2024, a reduction of two from its March forecast. In the March forecast, Fed officials unanimously believed that they would cut rates three times in 2024. However, this forecast has been challenged due to a series of stubbornly high inflation data and cautious comments from Fed officials during the first quarter.

Latest data shows that the inflation rate in April increased by 2.8% compared to the same period last year, indicating that inflation has stopped accelerating after a difficult first quarter. Consumer Price Index (CPI) data released on Wednesday morning showed that CPI rose 3.3% YoY in May, lower than the annual price increase of 3.4% YoY in April, further evidence of a moderation in inflation.

The Fed's policy decision has sparked widespread debate and differing interpretations in the market. Michele and El-Erian's views represent the market's questioning of the Fed's decision-making logic and uncertainty about future policy direction. Despite the Fed's attempts to convey confidence through its Summary of Economic Projections, the market's reaction showed that investors need more transparency and clear communication. As July and September approach, the market will closely monitor the Fed's next steps and how these actions will affect the future direction of the US and even global economies.

Editor / ruby