Mid-Week Wrap: 20th March 2024
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Market Mood
In 2023, the S&P 500 showed an inverse relationship with expected Fed funds rates, dipping when the Fed signaled prolonged higher rates and rallying with hints of potential cuts. However, despite reduced expectations for rate cuts this year, the stock market remains unaffected. The correlation between the S&P 500 and implied Fed funds rate, once clear, has disappeared. Investors have scaled back anticipated rate cuts for the year, with Bloomberg's World Interest Rate Probabilities indicating the possibility of at least three cuts by year-end. Despite hints of a near-term cut from Fed Chair Powell, overlooking the fact that core CPI exceeded estimates may be unwise. The Fed's cautious stance, reinforced by recent economic data, suggests they are in no rush to cut rates, despite potential preferences.