May 6, 2024

Rate Cuts Still on the Table, Timing Less Certain

Weekly Market Commentary

We often discuss the Federal Reserve and interest rates because both greatly impact investors. For starters, changes in interest rates have a significant impact on stock prices and income earned on savings.

Sharply higher rates in 2022 pushed equities into a bear market. The pause in rate hikes in 2023, coupled with continued economic growth and the craze surrounding AI, led to a new bull market.

Wednesday’s Fed meeting left rates unchanged—no surprise. How Fed Chief Jay Powell might frame the meeting was uppermost on the minds of investors.

Given stubbornly high inflation, would Powell shift gears and take on a more hawkish tone, even signaling the possibility of another rate hike this year? Or would he emphasize that current interest rates are high enough to bring the rate of inflation back down?

Despite the recent uptick in the rate of inflation, Powell said, “It’s unlikely that the next policy rate move will be a hike.” The Fed, he said, would require “persuasive evidence” before hiking rates again, setting a high bar for another rate increase.

He made no mention of:

  • Inflation becoming entrenched,
  • The need to be vigilant against inflation, or
  • The lessons and mistakes of the 1960s/70s.

And he sidestepped a question about whether Fed officials discussed a rate hike at the meeting.

But he said the Fed is in no hurry to reduce interest rates, though he did not rule out the possibility of a rate cut this year.

Overall, the Fed’s approach was less aggressive than some had feared.

Taking a 2024 rate hike off the table encouraged bullish sentiment, and he left the door open to an easier policy. But the Fed’s next move will largely be dependent on the economic outlook and inflation.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

An Annual Ritual at the Gas Pump

You’re right if you have this nagging feeling that gas prices rise in the spring. As the graphic illustrates, on average prices rise through Memorial Day, plateau over the summer, and slip in the fall. This year is no exception, as prices echo the seasonal pattern.

Just Do It

That ubiquitous phrase from one of America’s most extensive athletic footwear and apparel makers seems to have been adopted by most American shoppers. The U.S. Census Bureau reported last week that retail sales jumped 0.7% in March, following a strong 0.9% rise in February.

The Road to Lower Inflation Takes a Detour

The rate of inflation is accelerating. That’s not how we hoped to start this week’s Insights. Take a moment and review Figure 1. The 4-month moving average has broken out of its long-term downward trend (red-dashed lines). On a monthly basis, prices bottomed in June and began to gradually turn higher. The upward trajectory picked up in January.

No Matter How You Slice It and Dice It…

The latest employment numbers from the U.S. Bureau of Labor Statistics (BLS) point to a robust job market. On Friday, the U.S. BLS reported that nonfarm payrolls rose 303,000 in March, well ahead of expectations. It’s not simply March; growth has been above 250,000 for four months running.

Last Year’s Rally Spills into 2024

Stocks turned in a surprisingly strong 2023, and momentum has yet to slow in 2024 as last year’s rally remains in high gear. According to Dow Jones Market Data published by MarketWatch, the S&P 500 Index set 22 all-time closing highs this year. Likewise, the Dow notched 17 closing records, and the Nasdaq Composite recorded four new closing highs.