Wednesday, 3/27/2024 p.m.

  • Stocks finish higher: Equity markets closed higher Wednesday, with the S&P 500 up roughly 0.9%. Leadership favored value-style stocks, with the Russell 1000 Value Index gaining over 1% today, while the Russell 1000 Growth Index rose by about 0.2%.* Small-cap and mid-cap stocks showed strong performance today as well, with the Russell 2000 gaining over 1.5% and the Russell mid-cap index rising over 1%.* Treasury yields drifted lower, with the 2-year yield finishing around 4.57% and the 10-year yield ticking down to 4.19%.* Overseas, European markets closed mostly higher while Asian markets finished mixed overnight, with Japan's Nikkei Index logging a 0.9% gain and Chinese markets mostly lower.* Looking ahead, markets will have an opportunity to digest the latest inflation data with the release of U.S. personal consumption expenditures (PCE) inflation on Friday.
  • Equity markets have been unphased by higher yields: Markets and Fed policy moved in tandem for much of 2023. From August to October of last year, stocks pulled back as concerns mounted that the Fed might have to keep interest rates higher for longer to lower inflation to its 2% target. During this time, the 10-year Treasury yield surged from around 4% in early August to nearly 5% by late October.* However, in the final two months of 2023, bond yields moved sharply lower while equity markets rallied. The 10-year Treasury yield declined about 1%, finishing the year around 3.9%, while the S&P 500 gained over 12%.* The move lower in bond yields to close out 2023 was driven by lower inflation readings and commentary from the Fed that signaled it was likely done raising rates. Turning to 2024, bond yields have risen to begin the year; however, unlike the indigestion we saw in markets in the middle of 2023, stocks have continued to move higher. In our view, equity-market resilience in the face of higher rates has been a product of robust economic growth and strong corporate profits. Additionally, at last week's FOMC meeting, Fed projections showed it still sees a case for three 0.25% interest-rate cuts in 2024, despite higher-than-expected inflation readings in recent months. We believe the economic backdrop should remain supportive for equity markets, particularly as inflation trends lower and the Fed potentially pivots to interest-rate cuts around midyear.
  • Markets eye June for first rate cut: Last week the Fed left policy rates on hold, as expected, at 5.25 – 5.5%. In addition to the policy-rate decision, updated Fed projections showed that Fed members still see scope for three 0.25% interest rate cuts in 2024, unchanged from their December projections despite higher-than-expected inflation readings in January and February. Futures markets are now pricing in roughly three 0.25% interest-rate cuts in 2024, with about a 70% chance the first cut is delivered at the June meeting.** Market expectations for three rate cuts in 2024 aligns with our view coming into this year that the Fed would likely cut rates three to four times, with the first cut delivered around midyear. Later this week we'll see an important read on the Fed's preferred measure of inflation, core personal consumption expenditures (PCE), which will be released on Friday. With the Fed currently data-dependent, incoming inflation and economic data over the coming months will play a critical role in future monetary-policy decisions. Expectations are for core PCE to rise by 2.8% year-over-year, unchanged from the January reading. We believe that inflation should continue to moderate over the coming months, and that the Fed will likely have a credible case to begin cutting rates at the June meeting.
     

Brock Weimer, CFA
Associate Analyst 

*FactSet
**Bloomberg. 


Investment Policy Committee

The Investment Policy Committee (IPC) defines and upholds Edward Jones investment philosophy, which is grounded in the principles of quality, diversification and a long-term focus.

The IPC meets regularly to talk about the markets, the economy and the current environment, propose new policies and review existing guidance — all with your financial needs at the center.

The IPC members — experts in economics, market strategy, asset allocation and financial solutions — each bring a unique perspective to developing recommendations that can help you achieve your financial goals.

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