2024-01-22 14:59:07
After fluctuating within a narrow range for the past month,S&P 500 IndexLast Friday (19th) it hit a new closing high for the first time in more than two years.
S&P 500 IndexIt closed at 4839.81 points, surpassing the historical closing record of 4796.56 points set on January 3, 2022. According to FactSet data, the index rose to an intraday high of 4842.07 points, surpassing the intraday record of 4818.62 points set on January 4, 2022.
U.S. stocks experienced a bumpy start to 2024. Analysts attributed this to another rise in U.S. Treasury bond yields and uncertainty regarding the Federal Reserve’s interest rate cut in March.
However, even if the stock market cannot benefit from the Federal Reserve, it may still receive support from continued growth in the U.S. economy.
The Federal Reserve will begin cutting interest rates in 2024, which was the main reason for the rebound in U.S. stocks at the end of last year. But later, Fed Governors Christopher Waller and Raphael Bostic said in speeches that the Fed was in no rush to cut interest rates and might not even cut interest rates.
Last week’s economic data largely supported this view. U.S. retail sales increased by 0.6% in December from the previous quarter, the largest increase since September 2023; the number of people applying for unemployment benefits for the first time in December decreased by 18,000 to 187,000, the lowest level in 16 months.
In addition, the University of Michigan’s consumer confidence index rose 9.1 points to 78.8 in January, the largest increase since 2005. Inflation expectations fell to the lowest level in three years, and expectations for an improvement in financial conditions strengthened. As of last week, the chance of a rate cut in March, which had excited investors, had dropped from 79% to 52%.
“Barron’s” analysis pointed out that if the factors driving the rise of U.S. stocks are the same as at the end of last year, then none of this makes sense. The gains in U.S. stocks suggest that something is starting to change, at least on the surface: The stock market is beginning to price in expectations that the U.S. economy will continue to grow and that interest rates may be cut less frequently.
Perhaps investors should have foreseen this. Christopher Harvey, head of equity strategy at Wells Fargo Securities, pointed out that as of the end of 2023, the difference between investment grade bond and comparable maturity U.S. Treasury bond yields was only 0.99 percentage points, marking the seventh time since 1998 that it has been less than 1 percentage point at the beginning of the new year. .
In the past seven times, the average GDP growth rate of the United States was 2.2%, and the only year of decline was in 2020, when the new crown epidemic caused a complete economic stagnation. In recessionary years, the gap between investment-grade bond yields and U.S. Treasury yields of comparable maturities was more than 1.98 percentage points at the start of the new year. Harvey believes that this means that the US GDP growth rate will be above 2% this year, and the number of interest rate cuts will be far less than expected.
Changes in interest rate cut expectations might have hit the stock market, as was the case in late 2023, whenS&P 500 IndexThe forward price-to-earnings ratio for the next 12 months has increased from 17.48 times to 19.62 times by the end of the year; on the other hand, higher interest rates may lead to a decline in stock market valuations.
Worse, optimism regarding the economy may ultimately prove unfounded if the Fed delays cutting interest rates and pushes the economy into recession.
Roth MKM strategist Michael Darda said: “If the economy continues to grow, a higher interest rate structure will pose a threat to risk asset valuations; and if corporate revenue growth weakens this year, a deteriorating profit environment will become a threat. We The latter is still expected to happen.”
“Barron’s Weekly” remains optimistic that if the economy is as strong as it seems, it will provide momentum for the stock market to continue higher; if stronger growth translates into stronger profits, it will benefit small and value stocks.
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