Ahead of today's Fed rate decision and concerns that Fed Chair Jerome Powell could damage interest rate hopes, investors are holding off on any major bets. We see markets in Europe slightly lower and futures on Wall Street stagnant awaiting more clarity on what the Fed expects in terms of interest rates and whether the “dot plot” continues to suggest three rate cuts in 2024.
The market will also be listening closely to what Powell has to say about the ongoing shrinking of the balance sheet through the elimination of bonds without replacement – a process known as quantitative tightening (=QE) that has already reduced the money supply in recent months.
I do not expect a clear message from either the Fed or Powell that rate cut expectations will now be scaled back further, and instead continue the cautiously hawkish rhetoric from the Chairman (“no rate cuts are needed right now”) that we have seen in recent statements. Ultimately, however, the Fed will continue to take a wait-and-see approach and Powell will likely reiterate that conditions for rate cuts are improving but that the Fed will remain data dependent.
Investors have been particularly concerned about the recent tech rally, which has been fueled largely by the hype (but also actual sales growth) around artificial intelligence. I believe we are still in a bull market – and yesterday's record close for the S&P 500 confirms my view. However, markets will become more mixed and other sectors will likely be able to gain some traction – which is ultimately a positive given that much of the rally over the last 15 months has been driven entirely by Big Tech / AI.
👁 ROB'S MARKET OVERVIEW:
March 20, 2024
⚠️ All assets are heavily influenced by today's Fed rate decision and policy outlook. The market fears more hawkishness, which I believe will not materialize. However, if the Fed positions itself more hawkishly, we will see stocks & commodities fall, risk sentiment deteriorate and the USD soar (further).
🌐/🇺🇸 Global Markets ↘️/↕️/↗️ (US stocks to rebound first – then selling to return in second half of US trading)
Cyclical / Luxury Stocks ↘️/↕️/↗️
Tech/Growth Stocks ➡️/↕️/↗️
Financial Stocks ↘️/↕️/↗️
Defensive Stocks ➡️
Energy Stocks ↘️/↗️ (remains bullish)
Materials Stocks ➡️/↗️
💱 Forex
AUD ➡️/↗️ (AUD to recover from recent losses)
USD ↗️/➡️ (will likely not further benefit from Fed policy outlook; unless more hawkishness)
EUR, CAD ➡️
GBP ➡️/↘️ (JPY oversold for today; dovish tone of BoJ provides further downside)
CHF, JPY ↘️/➡️
⚒ Commodity Markets ↕️/↗️
Oil prices ↘️/↕️/↗️ (oil stabilizing after initial losses; oil prices remain bullish)
Natural Gas prices ↘️/↕️
Metal prices ↕️/↗️
Gold ↘️/↕️/↗️ (gold headwinds pre Fed rate decision but with strong rebound potential – unless Fed more hawkish)
⚡️Cryptos ↕️ (Very volatile; Bitcoin seems to find support in the $63K – $64K range)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Your Robert
