Major U.S. stock indexes have retreated from all-time highs ahead of the Federal Reserve's pivotal meeting in March.
By Wednesday, that tension will finally be resolved.
The U.S. central bank is scheduled to release its latest monetary policy decisions and updated economic forecasts Wednesday at 2 p.m. ET, and investors are looking for answers to one key question: Will the Fed still do it three times this year? Are you thinking of cutting interest rates in 2024?
The Fed's forecast for rate cuts this year has been changed from six to three after recent data showing that inflation is not falling as quickly as expected. The question, then, is whether months of stubborn inflation data will be enough to prompt the Fed to make further adjustments.
Elsewhere on this week's calendar, Nike (NKE), Lululemon (LULU), FedEx (FDX), and Micron (MU) are all scheduled to report earnings on Thursday, capping an otherwise relatively quiet corporate earnings schedule It is becoming clear that this is the case. On the IPO front, Reddit is set to make its public market debut on Thursday under the ticker “RDDT” as investors continue to gauge how much of the new issue market, which was frozen last year, will thaw in 2024.
Nvidia (NVDA) is also scheduled to hold its annual GTC conference on Monday, with investors keeping an eye on the company's product roadmap as the demand for chips increases significantly amid the AI boom.
The stock is up more than 260% over the past year, but the stock has been mostly flat for the past two weeks as investors have been in a holding pattern ahead of this event and this week's Federal Reserve meeting.
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Investors are not looking to change the Fed's benchmark rate, which should remain in the range of 5.25% to 5.50% since last July.
This means investors will pay close attention to both the Fed's latest Economic Outlook Summary (SEP) and, as in previous years, Fed Chairman Jerome Powell's press conference, which begins 30 minutes after the SEP and policy statement. It means that.
Matthew Ruzzetti, chief U.S. economist at Deutsche Bank, said in a note to clients on Friday that he thinks the Fed's message on Wednesday will be “hawkish” following recent inflation data. .
In other words, contrary to market expectations that the Fed is content to wait until the end of the year to cut rates, we can't expect the Fed to spend much of its time pushing back.
“At Powell's press conference, officials said they remain confident that inflation is on the desired trajectory, but that low inflation over the next few months is a prerequisite for beginning easing,” Ruzzetti said. It should be emphasized.”
After the Fed's December meeting, investors discussed the possibility of a rate cut in January, with March largely considered a formality. Ahead of this week's meeting, CME Group data showed the chance of a rate cut would not exceed 50% until July.
Market decline from point?
In December, a section of the SEP known as the “dot plot,” which shows policymakers' expectations about where interest rates will go in the future, showed that officials expected three rate cuts this year. It was done.
Michael Gapen, an American economist at Bank of America, wrote in a note to clients on Wednesday that any change to that forecast would be a “key focus for the market.”
Economists say only two officials believe rates will be higher than previously announced, boosting the consensus for only two rate cuts this year.
Given that markets have been rallying on expectations that the Fed will cut interest rates this year, a move toward smaller rate cuts could be seen as a threat to market gains. But some argue that it doesn't matter.
For example, Neil Dutta, head of economic research at Renaissance Macro, said in a note to clients this week that he was “skeptical” that markets would move significantly if he expected the Fed to cut rates by one less rate this year. .
Dutta argued that if the Fed reverses its forecast for rate cuts this year, it will likely be accompanied by an upward revision to economic growth. “The lifting of interest rate cuts in 2024 means little for the stock market and is a benign event,” Dutta said. “Ultimately, a strong nominal growth outlook means a strong earnings outlook.”
Oson Kwon, a U.S. and Canadian equity strategist at Bank of America, also recently responded to a question from Yahoo Finance about his company's new plan to push the S&P 500 index to 5,400 by the end of this year as companies expand. He expressed a similar opinion when asked whether the Fed poses a risk to his goals. income.
“If the Fed chooses not to cut rates, I think it's because the economy is too hot,” Kwon said. “I don't think earnings will go down just because the Fed won't cut interest rates if the economy is too hot.”
Kwon said the risk for companies lies in refinancing debt. However, 75% of the S&P 500's debt is already long-term fixed, so the impact of rising interest rates on the large-cap index will be limited.
weekly calendar
Monday
Economic news: New York Fed Services Business Activity, March (previously -7.3). NAHB Housing Market Index, March (forecast 48, previous 48)
Revenue: There are no significant profits.
Tuesday
Economic news: The number of building permits in February compared to the previous month (forecast +2%, previous -0.3%). February housing starts compared to the previous month (forecast +7.4%, previous -14.8%)
Revenue: XPeng (XPEV)
Wednesday
economic news:FOMC interest rate decision. MBA home loan applications, week ending March 15 (previously 7.1%)
Revenue: Chewy (CHWY), Five Below (FIVE), General Mills (GIS), Guess (GES), KB Home (KBH), Micron (MU)
Thursday
Economic news: The Philadelphia Fed's economic outlook for March (forecast was -1.3, previously 5.2). Number of new unemployment insurance claims for the week ending March 16 (expected 215,000, previously 209,000). S&P US Manufacturing PMI for March (expected 51.8, previous 52.2). S&P Global US Services PMI, March (expected 52.0, previous 52.3). S&P US Composite PMI for March (previously 52.5). Leading index, February (forecast -0.2%, previous -0.4%). Existing home sales in February compared to the previous month (forecast -1.6%, previous 3.1%)
Revenue: Accenture (ACN), Academy Sports + Outdoors (ASO), Darden Restaurants (DRI), FactSet (FDS), FedEx (FDX), Lululemon (LULU), Nike (NKE)
Friday
Economic news: There are no notable economic indicators.
Revenue: There are no significant profits.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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