Last week, the Fed told the stock market exactly what it wanted to hear.
Stocks rose to new highs on Wednesday as the central bank said it still plans to lower interest rates three times this year. Despite a reversal on Friday, the main averages closed the week up more than 2% across the board.
In the week ahead, a holiday-shortened trading week meets investors hoping to conclude a great first quarter of the year, with the Nasdaq (^IXIC) and S&P 500 (^GSPC) racing towards double-digit percent gains.
The February Personal Consumption Expenditures (PCE) price index will be issued on Friday morning, after financial markets have closed for Good Friday.
This report includes “core” PCE inflation, the Fed’s preferred metric, which is likely to show that monthly price rises have eased over the previous month.
The remaining of the economic calendar will be highlighted by housing data and consumer confidence indicators, while the earnings calendar will be rather quiet, with Walgreens Boots Alliance (WBA) and McCormick (MKC), the largest businesses by market capitalization, slated to report.
On Friday morning, with financial markets closed for Good Friday, the February Personal Consumption Expenditures (PCE) price index will be issued, providing investors with the week’s biggest highlight.
This report includes “core” PCE inflation, the Fed’s preferred metric, which is likely to show monthly price rises slowing from the previous month.
The remaining of the economic calendar will be highlighted by housing data and consumer confidence indicators, while the earnings calendar will be rather quiet, with Walgreens Boots Alliance (WBA) and McCormick (MKC), the largest businesses by market size, slated to release results.
Throughout the first quarter of the year, the Fed and investors sought to reach an accord.
When 2024 began, investors predicted the Fed to lower rates six times, totaling 1.5%. In December, the Fed signalled that three rate decreases, totaling 0.75%, were more likely.
Prior to the announcement on Wednesday, the two parties had reached an agreement. The Fed’s assurance that markets were “right” pushed equities to new highs.
With the Fed raising its GDP predictions, lowering its unemployment forecasts, and maintaining interest rate forecasts stable, the central bank has essentially declared a “all clear” on the economic outlook for 2024.
“Our main takeaway from the March FOMC meeting is that the Fed has fully embraced the positive supply-side narrative,” said Bank of America US economist Michael Gapen on Thursday.
“Significant upward revisions to GDP did not result in equal drops in unemployment or much higher inflation. Despite substantially better growth projections, the Fed believes the disinflationary trend will continue.
And, fortunately for investors, Fed Chair Jerome Powell emphasised that rates are expected to peak for this current tightening cycle while defining what Gapen referred to as the Fed’s “asymmetric reaction function.” Essentially, the Fed is pleased to lower rates when circumstances are good (i.e., growth is robust and unemployment is low), and it would be even delighted to cut rates if growth slowed or unemployment rose.
The most important economic data point of the week will be released after the markets close on Friday.
Economists estimate “core” PCE inflation to rise 0.3% in February from the previous month and 2.8% over the previous year. As you may know, the Fed’s objective for inflation is 2%.
Powell remarked in his press conference on Wednesday that the Fed’s forecasts for this figure are lower than mainstream. Following Powell’s statement, Neil Dutta of Renaissance Macro reminded people on X that the Consumer Price Index (CPI) and Producer Price Index (PPI) numbers released earlier in the month “get you nearly all the way there” for predicting PCE inflation. Both indices surprised to the upside this month.
The obvious follow-up issue is whether Reddit’s launch opens the so-called IPO window for a slew of other startups seeking to go public.
Yahoo Finance’s Josh Schafer spoke with renowned finance professor Jay Ritter, who claimed that this would not result in a surge in firms going public. Given that Reddit and others, like Instacart’s parent firm Maplebear (CART), had to take “down rounds,” or earn values lower than their previous fundraising level, during their IPOs, many companies may be hesitant to test the public market.
Companies go public for a variety of reasons. Some need to raise funds. Others require cash for early investors and staff. Others may be split out from a private ownership structure.
Avoiding a down round is undoubtedly the objective of venture-backed organisations, such as Reddit. Furthermore, many businesses generated a lot of money during the epidemic, making the need for additional funds an issue for tomorrow. And no firm, venture-backed or not, wants its value to decline over time.
However, Reddit investors and workers were (and continue to be!) sitting on windfalls that could only be realised through public market liquidity. Even if the value is lower than yesterday’s peak.
And, to Primack’s point that management teams’ arguments for why their IPO must be delayed would not hold up in today’s market, Reddit’s launch is proof positive.
The company’s valuation has dropped around 25% since its funding two and a half years ago. However, the issuance was favourably received, with shares priced at the upper end of the range that was offered to investors.