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S&P 500 +10.1% for Q1 – Can it Continue?
If you asked me at the end of December whether I thought the S&P 500 would be up ~10% at the end of the first quarter this year – I would have said “unlikely”. And yet here we are. With the promise of (coming) interest rate cuts and continued strong economic growth (implying growth in earnings) – US equities have arguably exceeded most analysts full year targets. For we have already exceeded all but 1 of 18 full year S&P500 forecasts “experts” made at the beginning of the year.
Powell’s Itchy Trigger Finger
Why does Powell think the Fed needs to cut rates? For me it’s curious. Itchy (trigger) finger maybe? What’s he so worried about? I was surprised by his (continued) dovish rhetoric and contradiction(s) last meeting. For example, on the one hand, growth is accelerating, inflation is falling and we have a strong labor market. Great! But we still need to cut rates and taper QT (soon!). I must be missing something – it’s hard to understand why the Fed is so keen to pull the trigger… what do they see we don’t?
Don’t Fight the Fed…
“Don’t fight the Fed” is a popular Wall St. adage for investors. The phrase was coined by well known investor Marty Zweig in 1970. At the time, Zweig explained the Federal Reserve policy enjoys a strong correlation in determining the stock market’s direction. Fast forward ~50 years and his theory has proven mostly correct.
The Real Surprise with Powell’s (Dovish) Statement
Investors were on tenterhooks going into today’s Fed interest rate decision. Markets were up sharply the past few weeks – expecting Powell to remain dovish. However two consecutive months of hotter-than-expected inflation prints had some thinking twice. Turns out Powell is a dove. However, he delivered more dovish ‘fuel’ for stocks that what many expected.