Wall Street Today | Wall Street Backs Off Bets on Fed Rate Cuts

Morgan Stanley strategists anticipate a sudden pullback in corporate earnings will slam the brakes on a US equity rally, a call at odds with Wall Street estimates. 

Earnings per share for the S&P 500 are set to drop 16% this year, according to Morgan Stanley strategists led by Andrew Sheets. That’s one of the most bearish predictions among those tracked by Bloomberg, and contrasts with bullish forecasts from the likes of Goldman Sachs Group Inc., which anticipates mild growth.

Persistent strength in the economy has wrong-footed bets that the Federal Reserve will make large interest-rate cuts this year, potentially undermining a key element of support for the 2023 stock rally.

Derivatives markets show investors now expect the Fed’s target rate to sit at 5% at year-end, according to Tradeweb, up from just above 4% last month.

Activity in the U.S. services sector in May expanded below economists' expectations. The sector has seen overall growth in 35 out of the last 36 months, but the rate of growth is decelerating due to a decrease in employment and sluggish demand.

The Institute for Supply Management said Monday its services activity index fell to 50.3 in May from 51.9 in April. Economists polled by The Wall Street Journal had expected the index to rise to 52.3.

Oil inched higher as Saudi Arabia’s go-it-alone production cuts were offset by broader risk-off sentiment and traders waiting to see if cuts will materialize. 

U.S. regulators are preparing to force large banks to shore up their financial footing, moves they say will help boost the resilience of the system after a spate of midsize bank failures this year.

The changes, which regulators are on track to propose as early as this month, could raise overall capital requirements by roughly 20% at larger banks on average, people familiar with the plans said. The precise amount will depend on a firm’s business activities, with the biggest increases expected to be reserved for U.S. megabanks with big trading businesses.

The Vision Pro, Apple’s first major new product category in eight years, will be available early next year and feature the ability for users to control the device with their hands, eyes and voice, a distinguishing feature of the headset in the current market.

KKR is paying $49 a share, 55% above Circor’s closing price on Friday, the companies said Monday, confirming an earlier report by The Wall Street Journal.