The US Federal Reserve is not ready for rate cuts in March

·       The S&P 500 closed January up +1.6% to a new monthly high.

·       Further new highs have triggered an influx of FOMO flows, and seen sentiment surge to ranges where the market usually takes a breather.

·       Tech stock valuations are getting more and more extreme (expensive).

·       Small caps are smaller than usual (% of total US market cap).

·       “Lindy Stocks” outperformed the S&P 500 over the past 20 years.

Overall, the advent of more and more new all-time highs is both a sign of strength and momentum, but also has seen sentiment, flows, and speculation rise to warning levels. Indeed, this week’s bonus chart section is particularly interesting and informative in that respect…

The US Federal Reserve is not ready for rate cuts in March

The Federal Reserve kept the Fed funds rate unchanged at a 23-year high of 5.25%-5.5% for the fourth consecutive meeting in January 2024, in line with expectations. Policymakers added that they do expect it will be appropriate to reduce interest rates until they have greater confidence that inflation is moving sustainably towards 2%. Additionally, Fed Char Jerome Powell commented that the Fed will be looking to observe additional data in the future to verify if inflation is sustainably moving towards the 2% target and that it is very unlikely that an interest rate cut in March would happen. Markets are now pricing in a 64% chance for the Fed to keep interest rates unchanged at its March meeting. Additionally, throughout the week, latest labour market data revealed that the US economy added more jobs than expected, dampening overall market sentiment.

Despite the negatives surrounding delayed rate cuts and a resilient labour market, US equity markets still ended the week strong, with the S&P 500 hitting a fresh record high on Friday, supported by strong corporate earnings from big-tech companies which lifted overall market sentiment. Meta shares jumped nearly 20% after the company announced its first dividend and posted its biggest quarterly sales rise in two years. Amazon also reported a 14% rise in revenue, leading to a 7% rise in its share price.

Source: Chartstorm, ifast