The futures market suggests a weak open to today’s stock trading. No major economic data releases are scheduled, but Federal Reserve officials Chairman Jerome Powell, Vice Chair for Supervision Michael Barr, and Atlanta Fed President Raphael Bostic will be taking part in separate events today. Wall Street will pay close attention to what they say, though we don’t expect any significant deviation from the Chairman’s recent remarks.
Stocks are still poised for decent gains this trading week. Through Thursday’s close, the blue-chip Dow Jones Industrial Average was up 2.8%, while the tech-heavy NASDAQ composite and the broader Standard & Poor’s 500 (S&P 500) index were 2.7% and 2.4% higher, respectively. Share prices were tentatively moving up early in the week, and amassed greater momentum when Chairman Powell commented on rate policy Wednesday afternoon.
Despite stronger-than-expected inflation data for the months of January and February, the Fed is still guiding for cuts to short-term interest rates in the second half of this year. The central bank is considering two or three one-quarter-point reductions to the federal funds rate, now at 5.25%-5.50%. Indications are that the domestic economy remains healthy, but growth is easing. Though employment has proven resilient, new hires and wage increases are slowing. The cost of housing seems to be moderating, implying better overall inflation comparisons, going forward.
Expectations are that the Federal Open Market Committee will hold interest rates steady at its next meeting (April 30th-May 1st). A majority of economists and analysts believe rate cuts will be announced in June. Fed officials have stated that data trends will determine actual rate policy. We believe three cuts, totaling 75 basis points, will occur to yearend. Next week, reports on new and pending home sales, home prices, durable goods orders, retail and wholesale inventories, consumer confidence and sentiment, jobless claims, personal income and spending, and revisions to first-quarter gross domestic product numbers will stream in. Most visibly, government agencies will report on the Personal Consumption Expenditures Price index (for the month of February), a measure closely watched by the Fed. Wall Street is hopeful for further visible progress on inflation. At this writing, it appears the latest stopgap spending bill will be enacted, again avoiding a possible government shutdown.
Year to date, the S&P 500, NASDAQ, and the Dow have advanced 9.9%, 9.3%, and 5.6%, respectively, building on their strong 2023 gains. Share-price improvements have been broadening beyond the Magnificent 7 leading technology stocks. The Magnificent 7 include Alphabet (GOOG), Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA). “Second-tier” semiconductor and software issues with more modest capitalization totals, e.g., Broadcom (AVGO), Taiwan Semiconductor (TSM), and Oracle (ORCL), have been performing well. Mid- and small cap equities have been gathering momentum, as well. Energy, financial services, industrial, and healthcare issues also have enjoyed increased investor interest, lately. Portfolio diversification should continue to serve investors well. – David M. Reimer
At the time of this article’s writing, the author held positions in none of the companies mentioned.
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