By
Steve Muchoki
April 16th, 2024
Positive economic indicators, such as an 18% surge in groundbreaking new single-family homes in November, contributed to the optimistic outlook.
Wall Street outlook continues to show positive trends as the market’s upward trajectory remains sustained following last week’s dovish policy shift from the Federal Reserve and eagerly anticipated crucial inflation data.
The broad-based rally propelled all three major US stock indexes to gains, inching the S&P 500 (INDEXSP: .INX) closer to its All-Time High (ATH). This surge in optimism has been attributed to the Fed’s commitment to accommodative policies and a positive outlook for economic recovery.
Dovish Fed Policy Fuels Bullish Momentum
According to reports, the recent dovish policy pivot from the Federal Reserve has driven the ongoing rally on Wall Street. Last week, the Federal Open Market Committee (FOMC) signaled the end of its tightening cycle and hinted at the possibility of rate cuts in the coming year.
This announcement has created an environment where investors are optimistic about continued support from the Central Bank, as it remains committed to keeping interest rates low and sustaining economic growth.
Small-cap stocks, notably those represented by the Russell 2000, have had a phenomenal December, rising by more than 11.7%. This is due to what economists call “Fed fumes”, or bullish market sentiment generated by the central bank’s accommodating policies. The lack of considerable downside pressure, combined with increasing breadth and momentum, has contributed to the overall bullish outlook.
While the current market rally is impressive, challenges and uncertainties persist. A notable example is FedEx’s recent 8% tumble in extended trading after the company lowered its full-year revenue forecast, reflecting challenges in the delivery sector amid a potentially weak holiday season.
Despite the Fed’s insistence on the lack of urgency in cutting rates, financial markets are pricing in a 67.5% likelihood of a 25 basis-point rate cut as early as March. Analysts suggest that the market may be running ahead of the Fed’s intentions, and the Central Bank’s attempts to tamper with these expectations have had limited impact. The discrepancy between the market narrative and the Fed’s messaging adds an element of uncertainty to the current rally.
Wall Street Outlook on the Economy
Positive economic indicators, such as an 18% surge in groundbreaking new single-family homes in November, contributed to the optimistic outlook. Additionally, upcoming reports on third-quarter GDP and Personal Consumption Expenditures (PCE) are anticipated to provide further insights into income growth, consumer spending, and inflation, crucial factors for shaping market sentiment.
In stock-specific developments, Boeing Co (NYSE: BA) rose 1.2% after German airline Deutsche Lufthansa AG (ETR: LHA) disclosed an order for 40 737-8 MAX jets. Kenvue Inc (NYSE: KVUE) climbed 2.2% following a US court ruling in favor of the consumer health company in a lawsuit over the drug Tylenol. Amgen Inc (NASDAQ: AMGN) advanced 1.1% after Bank of Montreal (TSE: BMO) upgraded the company’s shares to “outperform” from “market perform”.
Technology and growth stocks continue to lead the market rally, with the Nasdaq Composite (INDEXNASDAQ: .IXIC) hitting a new high. The Nasdaq 100 Index, in particular, hit its All-Time High (ATH) recently as it has seen a resurgence, benefiting from the Fed’s signaling that aggressive rate hikes to contain inflation are over, and rate cuts are under consideration for 2024.