THE WEEK IN REVIEW: March 17-23, 2024

When 6 Equals 3

Markets can bend and twist reality in very strange ways when they have decided on a direction. Spoiler alert: The direction right now is upward.

Remember when we started the year, and markets were expecting six or seven rate cuts in 2024? Then Federal Reserve Chair Jerome Powell cooled expectations at the end of the January meeting and again on “60 Minutes” by stating very plainly that six cuts were three cuts too many and there would be no cuts at the March meeting. The Fed didn’t flinch in off-meeting messaging, and the data — whether unemployment, inflation or economic growth — wasn’t cooperating.
But all the while, the markets had a strong desire to move upward. The data wasn’t behaving, inflation remained stuck between 3-4%, gross domestic product (GDP) was still strong and jobs weren’t cooling fast enough to justify a cut in March, so expectations shifted to a cut in June.
Then there were whispers that we may not even see the base case of three cuts in 2024. Markets foundered and waited for the Fed’s March meeting. After announcing no action at that meeting, Powell stepped up to the mic. What the market heard was music to its ears: There are going to be three cuts in 2024.

Plus, there was barely any mention of hitting 2% inflation at any specific time, cooling the economy or slowing wage growth and higher unemployment. Instead, Powell said the latest data points “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2%.” He also said, “We don’t really know if this is a bump on the road or something more. We’ll have to find out,” and “We’re not going to overreact … to these two months of data, nor are we going to ignore them.”

These were pretty dovish remarks, and that was all it took to jack up markets to new all-time highs last week. Please remember there have been zero rate cuts this year, and until we actually see one, all we have is expectations.

New records call for new predictions
The S&P 500 sat at 4,769.83 at the end of 2023, and we closed last week at 5,234.18. That’s growth of around 10% for the year so far. We had predicted we would end 2024 at 5,250; what we didn’t expect was revising the target after only one quarter.

It appears the S&P 500 will move higher, but it probably will not be a straight line. The anticipation and indirectness of “pricing in” rate cuts are always more exciting than the real thing when it does happen and can be very punishing when it does not.

The current run will likely run into April and possibly May. We may stumble in the summer and get nervous around the election, but we will recover and go higher. With that as the base case scenario, the S&P 500 could get as high as 5,500-5,600 by year-end. Take this opportunity to position yourself for the rest of the year; make sure you aren’t overextended and don’t forget to lock in higher rates, since we know they won’t last forever. However, neither will this market — so make sure you are set to withstand some volatility. You will be rewarded for your discipline and patience in the end.

​Coming this week

• Data this week includes consumer confidence on Tuesday and MBA mortgage applications on Wednesday.
• Thursday will be a big data day, with the third and final estimate of fourth-quarter GDP being released. The last reading was 3.2%. We’ll also see unemployment claims and consumer sentiment.
• On Friday, we’ll get the latest producer core expenditures (PCE) numbers, a favorite inflation gauge for the Fed. We’ll also see personal income and spending.