A last-minute deal to raise the U.S. $31.4 trillion debt ceiling will likely shift Wall Street's attention to other emerging risks, including further Federal Reserve interest rate hikes and an expected reduction in fiscal spending.
"There has been a pivot party in equities, which is this idea that Fed will pause and reverse course that has rewarded risk assets," said Emily Roland, co-chief investment strategist at John Hancock Investment Management.Since May 3, Dallas Federal Reserve Bank President Lorie Logan and St. Louis Fed President James Bullard haveon Friday appeared to bolster their case, with underlying core inflation at 4.7%, up from 4.6% in March and well above the Fed's 2% inflation goal.
That, combined with the possibility of higher interest rates to cool inflation, could help push the U.S. economy into a recession despite ongoing strength in the labor market, said Tony Rodriguez, head of fixed income strategy at asset manager Nuveen. And overall, analysts are expecting the S&P 500 to reflect earnings growth of 1.2% in the third quarter and 9.2% in the fourth quarter, according to Refinitiv.
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