Stock Market in March 2024

Quick Look:

• FOMC maintains the highest interest rates in 22 years at 5.25% to 5.5%.
• Economists anticipate FOMC to keep rates steady in March, with a potential cut in June.
• Inflation concerns persist, with CPI rising by 3.1% YoY in January.
• The “Magnificent Seven” tech stocks show robust fundamentals, potentially supporting market performance.
• Analysts predict an 8% upside for the S&P 500, with the energy sector expected to lead with a 17.8% upside.

March is poised to be a pivotal month on Wall Street, with discussions around key factors such as interest rates, inflation and the labour market. Federal Open Market Committee (FOMC) maintains interest rates at 5.25% to 5.5%, marking the highest range in the last 22 years. Economists predict the continuation of these rates through the upcoming meeting on March 20.

In its January meeting, the FOMC said it would refrain from contemplating rate cuts until “greater confidence” in declining inflation. Additionally, members underscored the potential risks associated with moving too quickly on rate cuts.

While there is some dissent among members regarding the potential for rates to remain high, most are concerned about being too restrictive for too long. The market suggests a mere 3.0% chance of a rate cut at the March meeting. However, there is a 66.1% chance of a rate cut of at least 25 basis points by June according to market pricing.

Inflation Trends and Economic Soft Landing

This February, the Federal Reserve considered mixed data as it aimed for a soft landing for the U.S. economy.

The consumer price index (CPI) rose by 3.1% year-over-year in January, down from its peak of 9.1% in June 2022 but higher than economists’ expectations of a 2.9% increase. The monthly CPI reading also saw a 0.3% increase, the largest since September. Moreover, shelter prices, a significant component of CPI inflation, increased by 6.0% year-over-year in January.

Alongside the higher-than-expected CPI inflation, the personal consumption expenditures price index (PCE) rose 2.4% year-over-year in January. This marks a decrease from its 2.6% gain in December. In January, Core PCE inflation, the Fed’s preferred inflation measure excluding energy prices and volatile food, rose by 2.8%, aligning with economists’ expectations. However, it still exceeded the FOMC’s long-term target of 2%.