**: CBN.
This factor may become a potential risk.U.S. stocks extended their recent strong performance last week, with the S&P 500 and the Dow hitting new all-time highs. While strong jobs data raised hopes of a soft landing, the prospect of a Fed rate cut in March was shaky, but the earnings reports of big tech stocks lived up to expectations and the market withstood the pressure of a change in expectations for a change in the path of interest rates.
In the coming week, the Nasdaq is expected to continue its charge to all-time highs, led by tech giants. However, the potential challenge could be the impact of volatility in US Treasury yields on risk appetite caused by the policy expectation game.
Hopes of a rate cut in March are all but dashed.
The resilience of the U.S. economy is pushing back discussions of future Fed rate cuts.
U.S. Labor Department data showed 35 new additions in January30,000 jobs, significantly better than market expectations, a new high in the past 1 year, the employment situation has improved across the board, and nearly 2 3 industries have recorded job growth. At the same time, wage growth accelerated further, hitting a two-year high.
Bob Schwartz, senior economist at Oxford Economics, said in an interview with CBN reporters that the January jobs report may not be what the market wants to see, which leads to the Fed not choosing to act in March, "Job growth is almost twice that of the market, and it can be said that the labor market conditions are still quite strong." ”
However, he believes that the acceleration of average hourly earnings may not pose a direct threat to the inflation outlook, as it is often not the best measure of nominal wage growth. Schwartz found that the previously released employment cost index for the fourth quarter of last year continued to slow and has been linked to 1Underlying productivity growth of 5% is broadly in line with the central bank's inflation target of 2%.
The Fed kept interest rates unchanged at its January policy meeting, and the policy statement adjusted its rhetoric on further tightening, arguing that the risks of achieving its employment and inflation targets are being better balanced. However, the Federal Open Market Committee (FOMC) is not considering starting to discuss policy easing anytime soon. Fed Chair Jerome Powell said that rate cuts will only begin if there is more evidence that inflation is moving towards the 2% target.
U.S. Treasuries suffered a sell-off late last week, the biggest gain since 2022, and the 2-year U.S. Treasury note, which is linked to interest rate expectations, surged more than 17 basis points to 4 on Friday37%, and the benchmark 10-year U.S. Treasury rose to 403%, again back above the 4% key psychological mark. The probability of a rate cut in March has plummeted to 20% from around 50% last week, according to the federal interest rate, although investors are still betting on policy space six times throughout the year.
Anna Stupnytska, global economist at Fidelity International, said: "It will take longer for the Fed to accumulate more evidence on inflation and to have a clearer understanding of how monetary policy transmission affects the economy. She added that "the Fed is unlikely to rush into action before June, and once the easing cycle begins, the pace will depend critically on the growth of the then-inflation mix." ”
Schwartz told CBN that the Fed has pushed back against the possibility of a rate cut in March because they want more confidence that inflation is coming down to its 2% target. He believes that the growth of consumer spending is gradually normalizing due to high interest rates and savings rates, which will also cause a future economic slowdown and provide suitable conditions for price cooling and future interest rate cuts. Schwartz expects that the Fed will formally discuss it at a meeting before the rate cut decision after more data is assessed, and the second quarter is expected to be a real rate cut window.
Technology stocks led the market.
Last week, the three major U.S. stock indexes achieved four consecutive weekly gains, but the trend can be described as ups and downs. Investor sentiment was weighed by corporate earnings reports, Fed decisions and fears of a crash in New York area banks, with the CBOE Fear Index (VIX), which measures market volatility, surging nearly 8% in the middle of the week.
Technology stocks have once again become market movers, with Amazon, Meta, Apple and others all performing better than market expectations, and the Nasdaq is from a record high. As of last week, 68% of the S&P 500 constituents reported quarterly results earning better than the market**, and overall earnings were about 77%。
Jay Hatfield, portfolio manager at Infracap in New York, said: "Most companies had strong earnings last week, and we think the results of the Fed meeting are also being quickly priced in, with markets turning to the prospect of a rate cut in May or June." ”b.Art Hogan, chief market strategist at Riley Wealth in New York, believes the good news is that any further tightening risks can be forgotten.
The flow of funds shows that investors are returning to the market. According to statistics provided by the London Stock Exchange (LSEG), U.S. stocks recorded a net 18 last week$300 million, breaking the previous four-week sell-off record, with a net inflow of more than $1.2 billion in technology stocks.
Tom Lee, chief strategist at Fundstrat, a representative of U.S. stock bulls, expects that his current target of 5,200 points by the end of 2024 may be too low and is expected to challenge 5,500 points, given how much the S&P 500 index climbed in January. According to his statistics, over the past 74 years, when the index was above 15% in the previous year** and had a positive return in January of the following year, the median return for the whole year was 16%.
Charles Schwab wrote in its market outlook that the rally driven by tech stocks in 2024 is impressive, and while the Federal Reserve is in no hurry to lower interest rates, earnings reports from big tech companies help prove some convincing evidence of their high valuations.
The agency believes that tech stocks** show no signs of reaching the end of the road, but the movement of the VIX could mean that volatility risks are brewing. Market data will be relatively light in the coming week, and investor focus will be on corporate earnings. At the same time, it should be noted that the impact of the trend of US Treasury yields, which is a reaction to the Fed's policy expectations and risk appetite. If the 10-year Treasury note rises further, it could trigger short-term adjustment pressure for profit-taking.