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Market Currents – 3/15/24

  • Positive Momentum Continues.  Stocks notched solid gains in February, with a majority of global indexes reporting positive outcomes.  The momentum was driven by upbeat corporate earnings and persistent investor enthusiasm over the transformative potential of artificial intelligence (AI) technology.  These factors helped to offset changing investor expectations for Fed rate cuts, which are getting pushed to later in the year. On the international front, stocks in emerging markets outshined their counterparts in developed economies.  Bond markets saw a modest uptick in yields, with the 10-year US Treasury rising slightly to 4.25%.       
  • Fed Rate Cuts.  Over recent months, Federal Reserve chair Jerome Powell has maintained a clear message: although rate cuts are under consideration, they are not on the immediate horizon.  The Federal Reserve is proceeding with caution, observing new economic data, in particular inflation reports, before taking any action.  Consequently, economists have scaled back their predictions, now anticipating 3 to 4 rate cuts over the year, a decrease from the initially expected 7 cuts.  This recalibration brings market’s forecasts more in-line with the Federal Reserve officials’ original guidance of 3 rate cuts in 2024.
  • Corporate Earnings.  The fourth quarter earnings season has largely concluded.  Marked by a sluggish and somewhat underwhelming start, the season picked up with comparatively strong profit reports from the technology sector, as well as individual companies such as Amazon and Meta, the former Facebook. In the end, the season outperformed earlier forecasts with a 3.4% increase in earnings, as reported by FactSet.  Approximately 73% of companies exceeded earnings expectations.  For 2024, S&P 500 earnings are expected to grow by about 11% over last year.   
  • Broadening of Market.  While the technology sector maintained its impressive performance, the market’s uplift has broadened, an encouraging signal for continued stock gains. In particular, the industrials, consumer discretionary, and materials sectors made substantial contributions to the market’s upward trend.  This diversification of market leadership, as opposed to a rally led by a narrow group of stocks, typically signals a healthier level of investor confidence, and suggests more sustainable prospects for the economy. 
  • Market Outlook.  It has been a positive start to 2024.  Historically, a strong start is often indicative of a promising year ahead for the markets.  We remain cautiously optimistic, bolstered by several significant tailwinds that continue to drive market performance.  These include resilient earnings and economic growth, the trend of ongoing disinflation, market expectations of rate cuts, and sustained enthusiasm around AI.  However, the market’s strength has pushed company valuations above their long-term averages, and continued earnings performance will be a key to further stock gains. Too, despite clear progress on the inflation fight, it is not clear that inflation has come fully to heel. Further delays in rate cut expectations could prove a negative for stocks.