The calm that has prevailed in the U.S. equity market may be starting to snap, as a range of worries bolster the case for investors looking to take profits on a rally that has seen the S&P 500 gain more than 7% this year.
The market may be “back in the soup on the banking crisis,” said Chuck Carlson, chief executive officer at Horizon Investment Services. “I think that is what jolted the market out of its low volatility environment.” And while investors expect the Fed to signal a pause in its monetary policy tightening after raising rates once more on Wednesday, many worry the impact of accumulated rate increases will create more ructions throughout the economy.
“It’s hard for us to come up with a scenario where the market upside is much greater than 3% to 5% from current levels,” Keith Lerner, co-chief investment officer at Truist Advisory Services, wrote in a note on Tuesday.The gyrations have disturbed a placid period in equities, which over the last week have been helped by better-than-expected earnings for several technology and growth stocks.
Treasury Secretary Janet Yellen warned on Monday that the agency will be unlikely to meet all U.S. government payment obligations “potentially as early as June 1″ without action by Congress. Futures markets positioning showed investors pricing in an 87% chance that the Fed will raise rates by 25 basis points on Wednesday, according to the CME FedWatch Tool, followed by cuts later in the year - though policymakers have projected borrowing costs remaining at around current levels until year-end.