Dovish Fed Leads To More Equity Gains

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Equities rallied on dovish Fed minutes last week.  More Fed members appeared to adopt the belief that 3 rate cuts will happen this year, while the Fed's "Dot-plot" was largely unchanged after last week's FOMC meeting.  The Fed increased their projections on GDP and also reduced expectations for Unemployment in 2024.  Some market analysis fear that markets will have peaked once the Fed begins rate cuts.  However, history shows that not the case.  Since 1980, the Fed has cut rates 20 times as equities were making new all-time-highs and yet the market was higher 12 months later on each occasion.  

Meanwhile, the revenue numbers on S&P 500 companies has shown improvement over the past few quarters.  In the fourth quarter, revenue growth was 4% higher, which is better than the two previous quarters.  The US Leading Index showed positive month-over-month improvement for the first time since the 2nd quarter of 2022.  Manufacturing and Housing have been two areas that have kept the Leading Index lower.  However, both Building Permits and Housing Starts were higher month-over-month last week and Existing Home Sales showed 9.5% growth.  New orders have seen a pickup in both the ISM Index and in Trucking Tonage.  The job market and consumer spending continue to show strength.  Equity markets are long overdue for a temporary pullback, so we shouldn't be surprised if that develops over the coming weeks.

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