Investors looked ahead to the Federal Reserve's latest policy decision.
Maybe Monday's stock market slide shows investors are finally tempering their optimism that the Federal Reserve will cut interest rates later this year to counterbalance an economic slowdown.
"[T]he markets may be too optimistic about how easy it is going to be to bring inflation back to target and will be surprised when the Fed does not cut rates in the face of a mild recession, Bank of America global economist Ethan Harris wrote in a note to clients before markets opened Monday. Simply put, investors have bid up stocks since mid-March on a belief that the Fed will pivot policy, and cut rates by half a percentage point in reaction a shallow recession, BofA said.
Unfortunately, the bank says such hopes will be dashed. "We see four risks this summer: an ugly debt ceiling battle, a significant tightening of bank credit, a geo-political event and disappointingly hawkish central banks. The plan for many central banks, in our view, is to raise rates into modestly restrictive territory and then hold them there to finish the job of bringing inflation back to target.
Dow Jones Industrial Average futures fell by 27 points, or 0.08%. S&P 500 and Nasdaq 100 futures dipped 0.09% and 0.18%, respectively.
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