Wall Street experiences a two-pronged economic shock this week.
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Coming up: The May Consumer Price Index (CPI) report is expected to be released on Wednesday, just hours before the Federal Reserve announces its monetary policy update. This unusual occurrence has happened only seven times since 2014, and it may not significantly impact the stock market, some investors believe.
Dave Sekera, the chief US market strategist at Morningstar, stated in a Monday note that while Chair Powell's unexpected comments could cause some volatility, a large increase in inflation figures could trigger a slight sell-off. The magnitude of this potential sell-off would depend on how much inflation exceeds expectations.
The Fed is generally expected to leave interest rates unchanged in June. However, upcoming CPI data might not affect the decision, unless a significant acceleration or deceleration in inflation occurs. This information will, nevertheless, guide the Fed's decisions in the second half of the year.
"The number of rate cuts the Fed will actually manage this year will heavily rely on the inflation outlook; if it remains stubborn, investors might have to adjust their expectations for easing in 2024," said Glenmede's investment strategy team in a note on Monday.
Inflation indicators show mixed signals: April's CPI report displayed signs of cooling after remaining high in the first quarter of 2023. Economic data also points to reduced consumer spending. However, other measurements like the Personal Consumption Expenditures index and the prices of homes, used and new cars, and their associated maintenance costs suggest that inflation is still lingering. Even as it slows, the journey may be bumpy.
The labor market, on the other hand, continues to be robust, with 272,000 jobs added in May. This, coupled with ongoing inflation, has led Wall Street to lower expectations for rate cuts in 2024, predicting only one or two.
According to a Friday note from UBS economists, if most Federal Open Market Committee participants believe that only one 25 basis point rate cut is necessary this year, it would be unlikely for them to backtrack and consider rate cuts in July or September.
Consumers express optimism about their finances, stocks, and declining inflation
Alicia Wallace, my colleague, reports that while polls indicate mixed attitudes towards the overall economy, American consumers seem to be more optimistic about their personal financial situations, the stock market, and inflation's reduction.
In the Federal Reserve Bank of New York's latest May Survey of Consumer Expectations, people's views on their current financial situation and future prospects have improved. The percentage of respondents who feel their finances have improved since April 2023 is one of the highest in over two years. Their optimism about their finances one year from now has reached a nearly three-year high.
Consumers' faith in the stock market is also stronger than it has been in three years, as they anticipate continued market growth.
Monday's survey revealed some variations in the labor market's perceptions.
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Microsoft and Google collaborate to enhance cybersecurity for rural hospitals
Microsoft and Google announced on Monday that they would offer free or discounted cybersecurity services to rural hospitals in the United States to make them more resilient against attacks. These cyberattacks have hampered patient care and even threatened lives.
Microsoft intends to provide free security updates to eligible rural hospitals, as well as security assessments and training for hospital staff. Google will offer free cybersecurity guidance to rural hospitals and initiate a pilot program to link its cybersecurity services to the specific needs of these hospitals.
These initiatives by Microsoft and Google aim to protect rural hospitals from the increasing risk of cybercriminals targeting them.
Approximately 1,800 rural community hospitals throughout the country are at a high risk for dangerous ransomware assaults. This is primarily due to a lack of IT security resources and a scarcity of cybersecurity-trained professionals, according to my co-workers Sean Lyngaas and Michelle Watson. Furthermore, these hospitals may be the only ones in the area for dozens of miles, and a ransomware attack could hinder their ability to accept ambulances, putting patients' lives in jeopardy.
As a response to these concerns, tech companies Microsoft and Google have collaborated with White House National Security Council officials to announce an initiative aiming to utilize the wide reach of their software, used in hospitals across the United States, to bolster the healthcare sector's defense against cyber attacks.
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In light of the current economic situation, some investors are considering diversifying their business portfolio by investing in sectors that are less vulnerable to inflation. The unexpected comments from Chair Powell and potential inflation figures could impact businesses that rely heavily on consumer spending.
