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Stocks continued their uptrend last week after the Federal Reserve held interest rates steady. For the week, the S&P 500 Index was +2.3%, the Dow was +2.0%, and the NASDAQ was +3.0%. The best performing sectors in the S&P 500 Index were the Communication Services, Consumer Discretionary, and Industrial sectors, while the Real Estate, Health Care, and Consumer Staples sectors lagged. The 10-year U.S. Treasury note yield decreased to 4.202% at Friday’s close versus 4.304% the previous week.
The Federal Reserve held the Fed funds rate steady at its March Federal Open Market Committee (FOMC) meeting. This was the fifth consecutive meeting of no change in monetary policy. The committee signaled it could lower the Fed funds target range, currently 5.25% to 5.50%, by 0.75% by the end of 2024. Fed Chairman Jerome Powell said the first rate reduction would likely come later this year. Based on CME Fed funds futures, investors are forecasting the first rate reduction could come at the June FOMC meeting.
The first quarter of the year is complete at the end of this week. The current first quarter consensus forecast for the S&P 500 Index is 5.0% earnings growth with revenue growth of 3.3%. Full-year 2024 earnings for the S&P 500 Index are expected to grow by 9.8% with revenue growth of 4.7%.
In our Dissecting Headlines section, we look at the Federal Reserve’s current Summary of Economic Projections.
Financial Market Update
Dissecting Headlines: Fed Projections
The Federal Reserve held the Fed funds rate steady at its March FOMC meeting and updated its quarterly Summary of Economic Projections. The FOMC upgraded its assessment of U.S. economic growth versus its projection in December. The committee increased its 2024 GDP forecast to 2.1% growth versus a previous projection of 1.4% growth. The committee also lowered its unemployment rate forecast to 4.0% from a previous projection of 4.1%.
On inflation, the committee kept its 2024 Personal Consumption Expenditures (PCE) forecast level at 2.4% but increased its Core PCE forecast to 2.6% from 2.4%. The PCE is the Fed’s data series to measure inflation. Inflation remains a focal point of the timing of interest rate reductions and the committee said it does not expect it will be appropriate to reduce the target range on Fed funds until it has gained greater confidence that inflation is moving sustainably toward 2%. Current FOMC projections do not have annual inflation at 2% until 2026, but forecasts a steady path there.
Fed Chairman Jerome Powell stated that the first rate reduction would likely come later this year and the committee kept its monetary policy path at a 0.75% total reduction in the Fed funds target rate for 2024 to a 4.50% to 4.75% range. These policy action should remain data dependent and members of the committee are currently split with ten members forecasting three or more 0.25% reductions and nine members forecasting two or less reductions.
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Want a printable version of this report? Click here: NovaPoint Weekly March 25, 2024
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