Rate Hike Uncertainty, June Swoon, Bitcoin Test

Every morning before the opening bell, the Schwab Market Update sets the stage for the day ahead, covering key market movers, economic developments, and emerging themes. Each edition includes "Three things to watch," and Thursdays feature a weekly section, "Crypto currents." This recap revisits select items for those who may have missed them, helping traders head into the weekend better informed.

The U.S. dollar index hit new 2026 highs this week, supported by ideas the Federal Reserve could hike rates at least once this year. A hike is fully priced in by October, and there's a rising implied volatility that one could come in September. But that's far from assured. "We are not there yet—we need to see how the inflation outlook evolves over the next few months before we become more certain a hike is likely," said Collin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research (SCFR). Last week's Fed statement made it clear that the committee is focused on its inflation mandate over its labor market mandate right now, given recent strength in the labor market. Fed Chairman Kevin Warsh repeatedly stated that the committee was "unambiguous and unanimous" in its commitment to bringing inflation down. The updated "dot plot" of rate expectations also showed that nine participants now project a hike this year. But that' doesn't really match the comments from Fed officials over the last month or so where there didn't seem to be an urgency to hike. Inflation trends may become more favorable with the recent drop in oil.

The third and last government estimate for first-quarter gross domestic product (GDP) surprisingly jumped to 2.1% from 1.6%. Analysts had expected no change. In less positive news, the government revised first-quarter personal consumption in the GDP report down to 0.5% from the initial 1.4% estimate. The 0.5% increase was its smallest annualized quarterly increase since the first quarter of 2022. "The upward revision to overall GDP should come with an asterisk since the consumer tends to be a big driver of the economy, and it's not good news that personal consumption was lower than initially expected," Martin said. Additionally, the GDP deflator, which measures prices across the economy, rose 3.6% last quarter, above the 3.5% second estimate. Weekly initial jobless claims fell to 215,000, below the 225,000 consensus estimate from Briefing.com. May personal spending and personal income both climbed 0.7%, but personal spending in April, was revised down to 0.4% from 0.5% in April.

With the dollar strengthening, bitcoin has slipped below $59,000 to just barely eke out a new bear market low. Money is still flowing out of bitcoin exchange-traded products (ETP). The seven-day average of net ETP flows—a proxy for mainstream investor interest—has been in the red since May 12, though the bleeding has slowed sharply the past couple weeks. But bitcoin's price remains around the 200-week moving average, which has served as support in previous bear markets, and other metrics point to constructive consolidation, according to Jim Ferraioli, director of digital currencies research and strategy at SCFR. One is perpetual futures funding rates. The other is options skew—what options data tells us about on-chain positioning. While leaning bearish, both indicators could also be read as "washed out," meaning the worst could be over, Ferraioli said. "This is a bear market. It's going to end when investors have finally capitulated. It takes time to recover from these things," he said.

Sometimes, the market likes its clever phrases. Think "Sell in May and go away." The "June swoon" is another example: June has a reputation for being one of the weaker months historically. But that reputation may be due for a refresh. While June has produced the second-weakest average monthly return in the S&P 500 Index going back to 1957, more recent numbers paint a rosier picture. According to Barchart, since 2010 the index has gained an average of about 0.74% in June, making it the seventh-best calendar month on that basis. What's more, five of the last six Junes (going back to 2020) have ended positively by at least 1%. The outlier was June 2022, when the S&P 500 dropped by 8.4%. So far this year, with just a few trading days left, a modest "swoon" could be in the cards.