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March 23, 2024 Market Update

The U.S. stock market resumed its rally after a two-week pause.  The S&P 500 Index rose 2.3% for the trading week, closing at yet another record high.  Equities have rallied in most weeks in 2024, lifting the S&P by nearly 10% year to date. 

The stock market rally continues to contrast with this year’s weak performance for U.S. bonds.  Using the Vanguard Total U.S. Bond Market ETF (BND) as a proxy, fixed-income securities rebounded in the trading week that just ended, but remain under water for the year with an 0.8% loss in 2024. 

As expected, the Federal Reserve announced last week that for the time being it will leave its benchmark federal funds rate in a range between 5.25% and 5.5%, a 23-year high.  More importantly, most of the committee members still expect three rate cuts totaling 0.75% by the end of the year, even though the central bank lifted its outlook for inflation and growth.  

Mr. Market has been worried that the Fed would be dialing back its rate-cut expectations, given the warm inflation prints that we've seen so far in 2024.  But sentiment continues to favor moderately high odds for a quarter-point reduction in the Fed funds target rate at the June policy meeting, based on the implied forecast via futures.   

In his press conference following Wednesday’s meeting, Fed Chair Jerome Powell conceded that the inflation rate had not retreated as quickly as expected over the last couple of months.  But he also said it was too soon to say the recent trend toward lower inflation had stalled.  He also advised that ongoing growth in the labor market would, in and of itself, not be a reason to hold off on rate cuts.

Meanwhile, with only hours to spare, the House passed legislation to avert a partial government shutdown this weekend, removing another possible risk factor for stocks (assuming the bill is approved by the Senate and signed by President Biden, which seems to be a given at the time of this writing).

That’s all for now.  Have a great weekend and invest wisely my friends.