S&P 500 Rises As Expectations Firm For Rate Cuts Later In 2024
The S&P 500 (Index: SPX) experienced a notable upward movement, with a rise of more than 1.8%, driven primarily by the solidifying expectations that the Federal Reserve may initiate a series of interest rate cuts in September 2023. This bullish sentiment propelled the index to close the trading week on Friday, May 10, 2024, at 5,222.68, narrowly missing its record high set on March 28, 2024, by a mere 0.6%.
Despite the varied comments from Federal Reserve officials throughout the week that seemed to scatter in all directions, the market’s anticipation for a forthcoming easing in monetary policy remained unshaken. A number of the Fed’s policymakers voiced concerns over persistently high inflation rates, suggesting a possible maintenance of the current interest rates to combat the upward price pressures. A faction of these officials expressed apprehension over the inflationary trends to the extent of showing readiness for an economic slowdown as a necessary evil. Conversely, another group acknowledged signs of slowing economic growth already, hinting at potential rate cut measures to invigorate the economy, albeit with uncertainty on the exact timing.
This diverse range of perspectives from Federal Reserve officials on the monetary policy outlook for 2024 only reinforced investors’ focus on September 2023 as the probable juncture for the commencement of rate reductions in the U.S. According to the churns of the CME Group’s FedWatch Tool, expectations have solidified around maintaining the Federal Funds Rate within the 5.25-5.50% target range until September 18, 2024 (Q3), marking the fourth consecutive week of such projections. Furthermore, for two weeks in a row, the tool has signaled the onset of a series of 0.25% rate decreases beginning from this date, envisioned to extend well into 2025 with 12-week intervals between cuts.
An update on the alternative futures chart indicates a convergence of the trajectory back to the projections modeled by dividend futures, spotlighting an investors’ collective forward look into the third quarter of 2024.
In the backdrop of these discussions and anticipations around Federal Reserve policies, market landscapes have been further colored by the latest figures from the Atlanta Fed’s GDPNow tool. According to this tool, the forecast for the annualized real GDP growth rate for the second quarter of 2024 stands impressively at +4.2%, a significant leap from the prior estimation of 3.3% growth. This uptick in GDP growth projections introduces an additional layer of optimism into the narrative, possibly influencing the prevailing expectations around monetary policy adjustments in the near term.
The week under review saw financial markets digesting a variety of statements from Federal Reserve officials, which, despite their diversity, did not sway the strong market sentiment anticipating rate reductions starting in late 2023. The firm stance of investors, anchored in projections from economic forecasting tools and futures charts, delineates a clear expectation: a shift towards a more accommodative monetary policy by the Federal Reserve as we head into the latter part of 2024.
