Anticipation of Corrective Action Is Building
Economic optimism is preventing any major market softness so far.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Following the Fed interest rate decision on Wednesday, March 20, the market celebrated its strongest week of 2024. Jerome Powell and his pals didn’t offer anything new or surprising, but the market liked the optimism about the likelihood of three interest rate cuts later this year. In addition, the Fed seems confident that the economy will stay strong as inflation continues to drop.
Market bears have been scoffing at the Goldilocks economic scenario since last October, and despite their furious arguments about impending doom, the market hasn’t cared at all. The strength of AI and big-cap technology seems particularly impervious to predictions of economic disasters.
With the indexes sitting close to all-time highs, there is still plenty of bullish optimism, but anticipation of a market correction is building. Ironically, the bears that are most aggressive in anticipating some corrective action keep fueling further upside as they are squeezed out of shorts and suffer from fear of missing out.
There has been some increased volatility recently as small-caps have had several sharp swings. In addition, the Magnificent Seven names have lost some luster, but the semiconductor names—especially Nvidia NVDA—have picked up the slack.
In the week ahead, there are quite a few Fed speakers on the agenda, but there is not much significant economic news. The Fed’s favorite measure of inflation, PCE, will be released on Friday when the market closes for the Good Friday holiday. We will have to wait a week for the reaction to that important news.
The key to the market right now is that investors and the Fed seem to be in tune with the potential for three rate cuts this year. As long as that dynamic continues, it will provide strong support for the market. There will be some volatility, but the theme that is driving the market is that the economic situation is nearly ideal. While that will be hotly debated, it is strong support for the market right now.
There is some soft action early on Monday morning and not much news flow.
