The Fed’s Shifting Outlook

The SPY Trader

Fresh news and strategies for traders. SPY Trader episode #1249. Welcome back to Spy Trader, your goto podcast for navigating the markets. I'm your host, Sparky Spreads, and it's 6 am on Thursday, June 19th, 2025, Pacific time. Hope you're ready for some insights, because while the US stock market is closed today in observance of Juneteenth National Independence Day, with both the NYSE and Nasdaq taking a break and reopening tomorrow, Friday, June 20th, there's still plenty to talk about from yesterday and what it means for the days ahead.Let's quickly recap what happened yesterday, Wednesday, June 18th. US stocks ended mixed after the Federal Reserve's big announcement. The Dow Jones Industrial Average slipped a bit, down 0.1 percent, or about 44 points, closing at 42,171.66. The S&P 500 edged lower by a tiny 0.03 percent to 5,980.87. But the Nasdaq Composite, our techheavy index, managed to claw out a slight gain, up 0.13 percent, or about 25 points, to settle at 19,546.27.The main event, of course, was the Federal Reserve's June 2025 FOMC meeting. The Fed decided to keep benchmark interest rates unchanged in the range of 4.25 percent to 4.5 percent for the fourth meeting in a row. Now, here's where it gets interesting: the Fed's projections, what they call the 'dot plot,' still hint at two 25basispoint rate cuts in 2025. However, they've dialed back the outlook for 2026 to only one cut, and more officials, seven out of 19, now expect no rate cuts this year, up from just four in March. The market is still pricing in about a 70 percent chance of a rate cut in September.On the inflation front, the Fed raised its inflation projection for 2025 to 3.0 percent, up from 2.6 percent, and still higher than its 2 percent target. Federal Reserve Chair Jerome Powell specifically pointed out that inflation in goods prices is expected to accelerate due to the impact of President Donald Trump's tariffs. They also lowered their GDP growth forecast for 2025 to 1.4 percent, a notable drop from the earlier 2.1 percent, suggesting a slowing economy. The unemployment rate is now expected to reach 4.5 percent by yearend.Beyond the Fed, escalating geopolitical tensions in the Middle East, particularly the ongoing IsraelIran conflict, continue to weigh on investor sentiment, raising concerns about potential US involvement and the impact on crude oil prices. President Trump's tariffs, and the unclear inflation impacts from them, were also highlighted as sources of economic uncertainty.Looking at sectors yesterday, seven out of 11 S&P 500 sectors ended in the red. Technology was the standout performer, helping the Nasdaq close higher, while Energy led the declines. In the broader picture for May and June, technology has been super strong, with megacap tech stocks like NVIDIA seeing substantial gains. Consumer cyclicals also rose, largely thanks to Tesla. On the flip side, real estate and energy sectors remain significantly undervalued. And get this, for the first time in over three years, no new companies were added to the S&P 500 in its quarterly rebalancing, which is a bit of a headscratcher, indicating a period of what's called 'stasis.'As for specific companies, IBM shares rose yesterday to an alltime closing high, up nearly 30 percent since the start of 2025, driven by new software launches for AI and advancements in quantum computing. Korn Ferry shares were up about 10 percent yesterday. Circle Internet Group stock jumped after the Senate passed stablecoin legislation. We also saw news that Robinhood launched new tools to attract traders. And some of our megacap friends like Amazon.com, Alphabet, and Meta have actually seen a shift in their classification from pure growth to partial value in the 2025 Russell Reconstitution, which means they're maturing a bit in their growth profiles.Alright, let's dive into what all this means. The US stock market is definitely in a period of heightened uncertainty. The Fed's decision to hold rates steady, combined with those upward revisions to inflation forecasts and downward revisions to GDP growth, points to a challenging economic environment. While the hint of two rate cuts in 2025 offers some hope, the Fed's overall