Morning in New York: The Fed Takes Center Stage

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The key event of the day for global financial markets will be the outcome of the U.S. Federal Reserve’s meeting. The consensus forecast calls for the federal funds rate to remain in the 3.5–3.75% range. Investors will focus primarily on the regulator’s updated macroeconomic forecasts and comments from its new chairman, Kevin Warsh. We also expect the rate to remain unchanged and anticipate a revision of the median forecast from 3.4% to 3.5% by the end of this year and from 3.1% to 3.2% by the end of next year. An adjustment to the guidance would signal a more cautious approach by the Fed toward further monetary easing amid persistent inflation risks. According to a Bank of America survey, most investors fear a “hawkish” tone in the statements at Kevin Warsh’s first press conference, but we believe the likelihood of hawkish rhetoric has decreased significantly in recent days thanks to an improvement in the geopolitical backdrop. Any signals that energy price risks are easing could be interpreted by the market as a sign that the Fed does not intend to significantly tighten its stance in response to the acceleration of inflation in recent months.

We also expect the Fed to raise its projections for the overall Personal Consumption Expenditures (PCE) price index for this year from 2.7% to 3.1%, and for the core index from 2.7% to 2.9%. These estimates will reflect the data released for March and May, rather than a change in the regulator’s assessment of the long-term inflation trajectory. We do not expect any significant revisions to the inflation forecasts for 2027, nor to the outlook for the labor market and GDP growth.

The main release on this Wednesday’s macroeconomic calendar will be the May retail sales data. The consensus forecast for the overall figure calls for a 0.6% month-over-month increase. A strong result would confirm the resilience of consumer demand, which would support expectations that interest rates will remain high for an extended period, while weak data could prompt forecasts of a faster easing of monetary policy.

The foreign policy agenda also remains in the spotlight. According to Reuters, the draft framework agreement between Washington and Tehran calls for the creation of a $300 billion private reconstruction and development fund to attract investment into Iran’s economy. Preliminary commitments from investors have already been secured for more than half of the stated funding amount. Progress in the negotiations could contribute to a further reduction in the geopolitical premium on oil prices, which would support risk appetite in global markets. Against this backdrop, WTI crude oil prices have corrected to $75–76 per barrel.

Futures on U.S. stock indices are showing a moderately positive trend. We assess the risk balance for the upcoming session as neutral, with high volatility.

— Conflicting media reports regarding Netflix’s (NFLX) possible interest in acquiring Lionsgate Studios (LION) have increased the volatility of its stock. After rising nearly 14% the previous day, the stock fell 6% following a report by Semafor and news that Netflix has no plans to make a formal takeover bid. At the same time, investor interest in the company remains high due to the ongoing consolidation in the media industry.

— AT&T (T) shares are down about 1% following the announcement that its CFO, Pascal Deroche, will step down at the end of 2026, and that his current deputy, Jennifer Beery, will take his place starting in early 2027. Despite the continuity in leadership, investors reacted cautiously to the personnel changes, as Deroch played a key role in optimizing the company’s balance sheet, as well as in implementing its strategy for developing 5G networks and fiber-optic infrastructure.

— Shares of furniture manufacturer La-Z-Boy (LZB) are up 16% in response to better-than-expected earnings and a forecast for the current quarter that was more optimistic than the analyst consensus. This indicates that demand for the company’s products remains strong, despite the challenging conditions in the housing market.

— Verastem (VSTM) shares rose 6% following the announcement of the start of Phase 2 clinical trials for the drug VS-7375. The company announced the enrollment of the first patient in the TARGET-D 201 study, which is evaluating the efficacy of the therapy for treating cancers with specific KRAS mutations. The stock’s future performance will largely depend on the study’s results and the timing of the clinical data release.

Trading on June 16 on U.S. stock markets ended mostly in the red after three sessions of steady gains. The S&P 500 fell 0.57%, the Nasdaq 100 fell 1.89%, the Russell 2000 declined 0.87%, and only the Dow Jones rose 0.64%, setting a new all-time high.

The main driver of the decline was profit-taking in high-tech stocks. Due to sell-offs in the chipmaker and software developer segments, the information technology sector (XLK: −2.79%) lagged behind. Negative momentum also prevailed among the “Magnificent Seven,” which intensified pressure on the S&P 500 and Nasdaq 100. The financial sector (XLF: +1.47%) emerged as a growth leader thanks to falling Treasury yields and stronger demand for bank stocks.

The decline in oil prices had an additional impact on investor sentiment. The price of WTI fell 5.8% to its lowest level since early March amid expectations that the U.S. and Iran would sign an interim agreement, which could lead to an increase in the supply of hydrocarbons on the global market. Geopolitical risks in the Middle East remain the focus of market participants, but the absence of new signs of conflict escalation helped maintain a relatively stable appetite for risk.

Macroeconomic statistics were mixed. Housing starts in May fell by 15.4% MoM, reaching their lowest level since May 2020, and the number of building permits also came in below expectations. At the same time, import prices rose 1.9% MoM against a consensus estimate of 1%, while export prices rose 1.3% MoM against market expectations of 0.3%. This points to persistent inflationary pressures.

— Rackspace Technology (RXT: +5% at the close of trading on June 16) signed an agreement with AMD (AMD: −7.3%) to roll out a 20 MW AI infrastructure in phases. At the same time, the company announced a workforce reduction of approximately 15% as part of an efficiency initiative. The news is fueling optimistic expectations regarding an acceleration in the company’s revenue growth.

— Amkor Technology (AMKR: +1.3%) has signed a 10-year contract with TSMC (TSM: −3.5%) to expand local capacity for advanced chip packaging technologies for high-performance computing and artificial intelligence systems in the United States.

— Yum! Brands (YUM: +2%) is selling the Pizza Hut chain for $2.7 billion. The business outside of China will be sold to the investment firm LongRange Capital for $1.5 billion, while the assets in mainland China will be sold to Yum China for $1.2 billion. The company also announced an additional $4 billion share buyback program. Investors reacted positively to the company’s decision to accelerate the return of capital to shareholders and improve the efficiency of cash flow allocation.

— Huntsman (HUN: −17.1%) plans to merge with Olin (OLN: −5.9%) in a stock-for-stock deal. As a result of the transaction, Huntsman shareholders will receive 45.5% of the combined company, OlinHuntsman. Despite the expected synergies and the creation of one of the largest players in the U.S. chemical industry, investors reacted negatively to the terms of the merger and the risks associated with integration.

This article was AI-translated and verified by a human editor