Last week, the Fed told the stock market what it wanted to hear.
News on Wednesday that the central bank still expects three interest rate cuts this year sent stocks to record highs. Despite a decline on Friday, major average stock prices ended the week with gains of more than 2% across the board.
Next week will be a holiday-shortened business week, with the Nasdaq (^IXIC) and S&P 500 (^GSPC) on pace for double-digit gains as investors look to cap off a strong first quarter of the year. Masu.
The economic calendar brings investors the week's key highlights on Friday morning, when financial markets are closed for Good Friday, when February's personal consumption expenditure (PCE) price index is released.
The report includes “core” PCE inflation, a Fed-recommended measure that predicts monthly price increases to moderate from the previous month.
The balance of the economic calendar will be highlighted by housing statistics and consumer confidence indicators, while the largest market capitalization companies, Walgreens Boots Alliance (WBA) and McCormick (MKC), are scheduled to announce their financial results, so the financial calendar will be affected. will be generally quiet.
The future of the Fed
Over the first quarter of this year, the Fed and investors worked to reach an agreement.
When 2024 began, investors expected the Fed to cut interest rates six times, or a cumulative 1.5%. The Fed signaled in December that three rate cuts, totaling 0.75%, were likely.
Prior to Wednesday's announcement, both sides had found common ground. And with the Fed's confirmation that the market was “correct,” stock prices hit record highs.
With the Fed raising its GDP forecast, lowering its unemployment rate forecast, and leaving its interest rate forecast unchanged, the Fed has more or less declared an “all clear” on the economic story for 2024.
“The main takeaway from the March FOMC meeting is that the Fed has fully embraced the positive supply-side story,” Bank of America economist Michael Gapen wrote Thursday. .
“Significant upward revisions to growth rates have not led to similar declines in unemployment or significantly firmer inflation. Despite forecasting much stronger growth, the Fed expects that disinflationary trends will continue.” I see you doing it.”
And reassuringly for investors, Fed Chairman Jerome Powell reiterated that interest rates are likely to peak in the current tightening cycle, outlining what Geipen called the Fed's “asymmetric response function.” repeated. So basically, the Fed is willing to cut interest rates when the economy is good (i.e., when growth is strong and unemployment is low), and even more willing to cut rates when growth stalls or unemployment rises. This means that interest rates will be cut.
housing, consumers, and inflation
The week's biggest economic data will be released on Friday, when markets close.
Economists expect “core” PCE inflation to rise 0.3% month-on-month in February and 2.8% year-on-year. Remember, the Fed targets 2% inflation.
Chairman Powell said in a press conference Wednesday that the Fed's estimates put this number below consensus.Neil Dutta at Renaissance Macro in response to Powell's comments reminded X people It was reported at the beginning of the month that the PCE inflation estimate was “approximately achievable” based on information from the Consumer Price Index (CPI) and Producer Price Index (PPI). It's worth noting that both indexes have been surprisingly up this month.
“Mapping CPI and PPI data shows that the core PCE deflator rose by a modest 0.3% last month,” Nancy Vanden Houten, chief U.S. economist at Oxford Economics, said in a note Friday. “There is,” he said. “Inflation is not low enough to give Fed officials confidence that they are on track to reach their 2% goal, but it does at least highlight that January's rise was largely temporary,” she said. Became.”
Elsewhere on the economic calendar, the Conference Board is scheduled to release consumer confidence data for March on Tuesday. The reading comes after the index fell last month for the first time since November 2023. In January, the index reached a two-year high.
IPO window breaks
As Reddit (RDDT) began trading on the New York Stock Exchange on Thursday amid the uproar surrounding the US Federal Reserve last week, investors feared one of the most hyped IPOs in a while. I saw it coming to market.
The social media platform's stock price closed at $45.94 on Friday, giving the company a market capitalization of $7.3 billion. On Wednesday night, the IPO was priced at $34 per share, resulting in $748 million in proceeds. Back in 2021, Reddit raised $410 million at a valuation of over $10 billion.
The next obvious question is whether Reddit's debut will open the so-called IPO window for many other companies looking to go public.
Yahoo Finance's Josh Schafer spoke with eminent finance professor Jay Ritter, who argued that this won't lead to a boom in companies going public. Pointing out that Reddit and other companies like Instacart's parent company Maple Bear (CART) have had to take “down rounds” during their IPOs, meaning they received valuations lower than their previous funding levels. Many companies will continue to be reluctant to test the public markets.
Dan Primack, a veteran Axios technology reporter, argued Friday that this week's fundraising, which has raised more than $5 billion worldwide, is “an end to 'wait until market conditions improve' or 'uncertainty.'” did. If a company has the numbers and story to go public, the only obstacle is inertia. ”
And I think both statements are correct.
Companies go public for a variety of reasons. Some need to raise capital. Some companies need liquidity for early investors and employees. Others may be spun out from some type of private ownership structure.
For the venture-backed companies that Reddit comes from, avoiding down rounds is certainly a goal. Additionally, many companies have raised large amounts of cash during the pandemic, making the need for more funding tomorrow's challenge. And no company, venture-backed or not, wants to see its value eroded. under over time.
But Reddit's investors and employees were (and are!) counting on a windfall that only public market liquidity could provide. Even if valuations remain below yesterday's all-time highs.
Also, Reddit's debut is positive evidence for Primack's point that, essentially, management's excuses for why the IPO has to be delayed don't hold up in today's market.
The company's valuation has fallen about 25% since its funding two and a half years ago. However, the issue was well received and the stock price was set at the high end of the range sold to investors.
A criticism of the IPO process is that stock prices are priced based on the daily pop stock experienced on Reddit, rather than finding the valuation that will attract the most capital for the company. Essentially, these events are for bankers, not investors or employees. But of course it is.
And in the long run, the value of Reddit and other companies will be determined by the market and exposed to forces that can frustrate or disrupt executives, insiders, employees and others.But that's the modern financial system we have. And after his two eventful years, the opportunity is wide open for companies to join in on the fun.
economic calendar
Monday
Economic data: New home sales in February (forecast +2.1%, previous +1.5%). Dallas Fed manufacturing activity, March (expected to be 13, previously -11.3)
Revenue: No prominent companies are scheduled to report their results.
Tuesday
Economic data: Durable goods orders for February (expected to be +1.4%, previously -6.2%). FHFA Home Price Index, January (previously +0.1%). S&P CoreLogic Case-Shiller Home Prices, January (expected +0.2%, previous +0.21%). Conference Board Consumer Confidence Index, March (107 expected, previously 106.7). March Richmond Fed Manufacturing Business Index (previously -5)
Revenue: McCormick (MKC), GameStop (GME), nCino (NCNO), Progress Software (PRGS)
Wednesday
Economic data: MBA home loan applications, week ending March 22 (previously down 1.6%)
Revenue: Carnival (CCL), Land's End (LE), Cintas (CTAS), Paychecks (PAYX), RH (RH), Blaze (BRZE), Rumble (RUM)
Thursday
Economic data: Fourth quarter GDP growth rate, third forecast (expected annual rate of +3.2% pace, previously annualized rate of +3.2% pace). Number of new unemployment insurance claims for the week ending March 23 (previously 210,000). Pending home sales, February (previously down 4.9%). University of Michigan Consumer Sentiment, March (previously 79.4). Kansas City Fed Manufacturing Activity, March (previously -4)
Revenue: Walgreens Boots Alliance (WBA)
Friday
Economic data: Personal consumption expenditure price index for March (expected +0.4%, previously +0.3%). “Core” Personal Consumption Expenditure Price Index for March (expected +0.3%, previously +0.4%). Annual Personal Consumption Expenditure Price Index, March (expected +2.5%, previous +2.4%). Annual “Core” Personal Consumption Expenditure Price Index, March (expected +2.8%, previous +2.8%). Personal income for February (expected +0.4%, previously +1%). Personal spending for February (expected +0.5%, previously +0.2%). Good trade balance in February (expected to be down $89.7 billion, previously down $90.5 billion)
Revenue: The market is closed for Good Friday.
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