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No surprise, Fed has no interest rate change…

  • The market’s sole focus in recent days has been on the Federal Reserve’s interest rate posture. Earlier this afternoon, the Federal Reserve announced, as expected, that it would hold interest rates unchanged. However, the central bank took a more hawkish view signaling that it was open to cutting rates, though not right away – in effect saying that market expectations of 5-6 interest rate cuts were too optimistic. Additionally, Mr. Powell re-emphasized the Fed’s sustained goal of re-achieving a 2% inflation level.

 

  • In recent weeks though, little attention has been given to lackluster corporate earnings growth. With almost half of US companies having reported on their fourth quarter performance, aggregate earnings have declined almost 1.5%.  Of special attention, “the move back down in net profit margins is notable,” said Liz Ann Sonders, chief investment strategist at Schwab. And yet, the market has rallied ~15% since its October lows even as some contrarian signals are flashing yellow warning signs for continued market advances. With expectations sky high, market leaders Alphabet and Microsoft slid earlier today after reporting earnings yesterday afternoon. Both companies exceeded their Wall Street’s quarterly forecasts and demonstrated progress in key business segments. However, their shares soared last year and into the start of 2024, setting up a “buy the rumor, sell the fact” scenario. Mega-cap earnings accelerate tomorrow afternoon as AppleMeta and Amazon compete for views on Wall Street. One concern is Chinese demand, especially after companies, including General Motors (GM), reported challenges there this earnings season. Cloud dynamics also come into play when Amazon reports following Alphabet and Microsoft’s tallies in this segment yesterday.

 

  • Yesterday’s upbeat Conference Board Consumer Confidence report and rising job openings data made a March rate cut feel even more remote. Futures trading now anticipate the rate cut as more of a May or June event. Even so, Treasury yields were pared after the FOMC’s announcement, and also influenced by the U.S. Treasury announcing lower-than-expected quarterly borrowing needs earlier this week.

 

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