Fed Holds Rates Steady: Markets Waver Despite Two More Cuts Predicted This Year

The S&P 500 and Nasdaq 100 are up while the Dow is slightly down amid mixed signals, as the Federal Reserve held interest rates steady but projected two rate cuts later this year. Equities found support from falling jobless claims and weaker housing data, which also pushed bond yields lower, while geopolitical tensions surrounding Israel and Iran limited gains. Marvell Technology led Nasdaq 100 gainers after raising its data center market forecast, while energy stocks declined amid lower crude oil prices; investors are also bracing for potential tariff news.

Analysis

U.S. equity markets exhibit a mixed performance, with the S&P 500 and Nasdaq 100 posting modest gains of +0.08% and +0.28% respectively, while the Dow Jones Industrials edged down -0.06%. The Federal Reserve maintained its current interest rate range of 4.25%-4.50%, and while acknowledging higher inflation and slower growth forecasts, it reiterated projections for two rate reductions later this year, though markets price in a 0% chance of a cut at the current FOMC meeting. This dovish tilt is somewhat offset by escalating geopolitical tensions, as the Israel-Iran conflict continues for a sixth day with no signs of de-escalation and speculation mounts regarding potential U.S. involvement following President Trump's remarks calling for Iran's "unconditional surrender" and a national security meeting. While Iran has reportedly initiated negotiation talks, the situation remains volatile, evidenced by "extreme jamming" disrupting over 900 vessels and causing a tanker collision near the Strait of Hormuz, a critical oil transit chokepoint handling about 20% of global daily crude, though it remains open. Economic data presented a mixed picture: weekly jobless claims fell -5,000 to 245,000 as expected, but U.S. May housing starts plummeted -9.8% m/m to a five-year low of 1.256 million, and building permits dropped -2.0% m/m to a 4.75-year low, both significantly weaker than anticipated. Consequently, the 10-year T-note yield declined by 2 basis points to 4.36%, supported by safe-haven demand and the weak housing figures. Sector-wise, technology stocks, led by Marvell Technology's (MRVL) over 6% surge on an increased data center total addressable market forecast to $94 billion, and banking stocks, with JPMorgan Chase (JPM) up over 2% on reports of potential easing of capital rules, showed strength. Conversely, energy stocks declined as WTI crude oil prices fell over 1%. Investors also remain cautious ahead of anticipated negative tariff news from the U.S. within the next one to two weeks.

Key Decisions for Investors

• Investors should consider a balanced approach, acknowledging the Federal Reserve's signal of future rate cuts while remaining vigilant to acute geopolitical tensions in the Middle East, particularly concerning the Strait of Hormuz, and the looming threat of new U.S. tariffs.
• The significant downturn in U.S. housing starts (down -9.8% m/m to a 5-year low) and building permits (down -2.0% m/m to a 4.75-year low), alongside a -2.6% fall in MBA mortgage applications despite lower rates, warrants careful monitoring as potential harbingers of broader economic deceleration.
• Focus on company-specific fundamentals and catalysts, such as Marvell Technology's (MRVL) upwardly revised market forecast causing a +6% stock increase or Nucor's (NUE) strong Q2 EPS guidance, while exercising caution with sectors facing headwinds like energy due to falling WTI prices, or companies with negative news like Bitdeer's (BTDR) $300 million note offering or Zoetis's (ZTS) downgrade.
• Anticipate potential market volatility stemming from the upcoming FOMC meeting commentary and any definitive news on U.S. trade tariffs expected within the next one to two weeks.