All eyes will be on the Fed this week as market sentiment for future rate cuts is a moving target these days.
Currently, odds of the first Fed rate cut have moved lower and are close to a 50:50 probability in March between a 25 basis point cut or no cut. Markets got ahead of the curve based on the Fed's language in December and expectations have come down slightly. The Fed's comments this week after their meeting Wednesday may move markets if Chairman Powell is viewed as overly hawkish or overly dovish.
Meanwhile, on the economic front, the Fed's favorite inflation measure, the PCE Price Index, showed little change year-over-year (2.6%) and the month-over-month change was as expected (0.2%).
The economic backdrop continues to support equities as 4th quarter GDP came in higher than expected at +3.3%, brining the annualized nominal GDP figure for 2023 to +6.3%. The consumer is one reason for the strong number and December's measure of Personal Spending was higher than expected (+0.7% vs 0.4%). The housing numbers are also showing some life as Pending Home Sales (leading) and New Home Sales appear to have stabilized and are showing a promising uptrend. It's very early, but the Atlanta Fed's GDPNow estimate for the first quarter of 2024 is +3.0%, so while we expect some choppy trading ahead, the economy supports a bullish case for now.
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