US stocks have stalled record high advances, a testament to the strong economic fundamentals that persist amid a political circus for the ages. This build up of positive momentum has helped drives longer-dated yields higher causing a steepening of the US yield curve. Wall Street analysts are looking for S&P 500 companies to post more than 8% growth in earnings. This impressive second straight quarter of increase s further improved investor confidence for future quarters.
The recent rally in the stock market has occurred in the context of a radically shifting macroeconomic picture. Recent US Consumer Price Index (CPI) figures released yesterday came in right on the money, indicating that inflation is continuing at healthy levels. One of the primary influences behind the Federal Reserve’s inclination to raise interest rates is this stability. Most economists believe the United States is on the verge of a major economic growth explosion in the very near future.
International growth outlooks aren’t too shabby either, with optimistic projections for almost all major economies including China and of course India. China is expected to slow to around 5%, and India might be 6.5%+. Taken together, these developments promise to reshape the global trade landscape in profound ways. They can impact the ability of US companies to succeed in international markets.
Former President Donald Trump came out swinging with his 2024 presidential primary campaign announcement. Specifically, he plans to implement a 25% tariff on all goods imported from any country that does business with Iran. This high-profile decision is poised to shape America’s trade relations and may further fuel the geopolitical fires already flaring up around Iran. Market analysts are carefully watching the potential impact of such tariffs on US domestic industries and international trade flows.
Today could be a big day on the financial markets. The upcoming release of the PPI data should give us an idea about whether these optimistic deflationary trends are continuing. What’s worse, a ruling expected sometime today is expected to be bad for US bonds, possibly affecting investor sentiment about all fixed-income securities.
Tellingly, Jamie Dimon, CEO of JPMorgan Chase, has recently repeated his longstanding assertion that US economic growth is “remarkably resilient.” His remarks capture the mood of many CEOs who are still optimistic about chances for long-term growth in our economy. At the same time, the US 2-year yield has remained above the 3.50% level, reflecting where markets expect future FOMC actions on interest rates to land.
In fact, the probability of a cut in March has dropped to less than 30%. That suggests that monetary policy could be tighter for longer than we had thought. Jerome Powell, Federal Reserve Chair. Though discussions continue around DOJ-related controversies – including with former Federal Reserve Chair Janet Yellen – Jerome Powell retains strong support among economic circles. His leadership during this trying time of uncertainty is seen as stabilizing for both investors and policymakers, and pretty much everyone else.
Last week, US crude inventories climbed by roughly 5.3 million barrels in the energy industry. This jump indicates a new potential oversupply scenario that could put downward pressure on oil prices. Now, instability in Iran is pushing oil prices up even further. Together, these quirks and idiosyncrasies present a fascinating and challenging set of dynamics that drive changes in market conditions.
As these macroeconomic and geopolitical developments continue to play out, financial markets and investors remain on edge. They track and analyze the proposed impacts to domestic and foreign markets. An upbeat backdrop of earnings growth forecasts and stable inflation data are making busy days for market participants. Only then can they confidently navigate this dynamic landscape.