(Michael Nagle/Bloomberg/Getty Images)
Major US indexes notched their fifth-consecutive winning week on Friday as strong corporate earnings and gains in Big Tech added to fervor on Wall Street.
Those gains came even as Federal Reserve officials attempted to reduce investors' lofty expectations for a plethora of interest rate cuts this year.
Investors are still expecting four to five cuts in 2024, according to the CME FedWatch Tool, even though Fed officials have repeatedly said there will likely be three at most. That mismatch in expectations is beginning to concern some economists and traders.
What's happening: Markets are soaring to new records – the S&P 500 broke through the 5,000-level threshold last week and the Nasdaq is on the verge of passing its previous best of 16,057. The US economy also seems to be chugging along: The unemployment rate remained at 3.7% in January, marking the 24th consecutive month that the nation's jobless rate has been under 4%.
But that doesn't mean the US has successfully avoided recession.
The difference between a soft landing – where inflation eases but the economy remains strong – and a recession is slim. The Federal Reserve is carefully weighing its next, crucial maneuvers as it attempts to land the plane. It is now signaling that interest rates could come this year but not until spring or summer.
There's still more than a 50% chance that the Fed cuts faster than the market expects or even raises rates again, said Torsten Slok, chief economist at Apollo Global Management in a note to investors on Monday.
There are two signs pointing to unease amongst economists and investors.
Economists are getting worried: More than 20% of respondents said that the Federal Reserve's monetary stance is "too restrictive" in a new survey by the National Association for Business Economics poll released on Monday, the highest percentage since mid-2010.
That means they think the Fed is keeping interest rates too high and could potentially slow down economic growth too much and risk a recession. The results of the survey came just before the central bank's January policy meeting, where officials kept rates the same and Fed Chair Jerome Powell indicated that it was unlikely the bank would lower rates at its meeting in March.
On Friday, Atlanta Fed President Raphael Bostic told CNN that he doesn't see rate cuts coming until this summer.
Investors show some doubt: Markets appear to be stable, or less volatile than before. But some indicators show that there's underlying uncertainty and that Wall Street still fears a recession, said Slok.
Rates volatility (how much interest rates are expected to move up or down) and swaption volatility (how much the cost of betting on future interest rate changes is going up or down) are high relative to the VIX (which measures how much people expect the stock market to swing in the near future).
So even though the stock market seems relatively calm, there's a lot of choppy water in the world of interest rates. Investors appear to be more unsure of the Fed's next moves than in the stock market's ups and downs.
And of course recessions aren't particularly good for the stock market, either.
Coming up: This is a busy week with a lot of Fed speakers ahead. Tuesday morning also brings the January Consumer Price Index, a key measure of inflation. If CPI shows that price increases are higher than expected, we could see some of that uncertainty start to make an impact.
Comments
Post a Comment