Mid-Week Market Minute 3.13.24

Markets Encouraged by Stronger-Than-Expected Economic Growth

Stocks were trading higher mid-week with the S&P 500 index up about 1% in early trading. This week, investors digested a strong jobs report and Consumer Price Index (CPI) data that, although hotter than expected, showed the broad disinflationary trend is still intact. On Tuesday, the S&P 500 index closed at a record high for 17th time this year with 80% of stocks in the index trading above their 200-day moving-average. Markets have been encouraged by stronger-than-expected economic growth, as Wall Street economists now expect the U.S. economy to grow at an annualized rate of 1.8% in the first quarter. This is up from projections for 0.6% in January, according to Bloomberg data. In addition, second-quarter growth forecasts have been revised up to 1.3% from 0.4% for the quarter as investors have increasing confidence a recession is not imminent.

Supporting this view was the latest monthly jobs report, which showed the labor market added 275,000 nonfarm payroll jobs in February, above the consensus of 200,000. This data, along with signs of resilient consumer spending, has investors feeling increasingly better about the outlook for economic growth. On the inflation front, despite a core CPI reading that came in at 3.8% annualized (vs. 3.7% consensus), we believe the downward trend in inflation remains intact and expect the first rate cut by the Federal Reserve to occur around the June timeframe. The Fed still can be patient, as we get three additional CPI prints between now and the FOMC meeting in June. Markets now look forward to next week’s commentary from Federal Reserve Chair Jerome Powell alongside the quarterly summary of economic projections. Given the Fed’s desire to gain further confidence that inflation is moving sustainably toward 2% before beginning to lower rates, we expect Powell to reiterate a continuation of the data-dependent approach. Specifically, the Fed will look for more progress in the services and shelter components of inflation before the committee will feel confident moving forward with rate cuts. 

Source: GSAM, CNBC, JPMorgan, Bloomberg

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