Spring Forward: Investors Eagerly Await Fed’s Latest Look-Ahead

The SPX hit its 18th high of 2024 ahead of the FOMC's two-day meeting, where Fed Chair Powell's press conference and a new dot plot are highly anticipated.

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Key Takeaways

  • FOMC dot-plot projections, Powell conference loom as key influencers

  • Semiconductors remain in focus ahead of Micron earnings

  • U.S. shoppers loading up digital grocery carts like never before

(Wednesday market open) Investors happened to choose the first day of Northern Hemisphere spring to send the S&P 500® index to its 18th record high close of 2024.

Whether sunny market attitudes persist after this week’s Federal Open Market Committee (FOMC) meeting concludes early Wednesday afternoon remains to be seen.

 Stock index futures were narrowly mixed before the end of overnight trading as investors prepared for FOMC meeting results, which are widely expected to include no change to the benchmark funds rate. That makes Fed Chair Jerome Powell’s post-FOMC press conference a must-see, must-listen occasion as investors seek clues to the central bank’s mindset on inflation and the path of interest rates.

The FOMC will also update its economic forecast, the Summary of Economic Projections, which includes its so-called dot plot of members’ rate expectations for the next few years.

With the Fed expected to hold its policy rate at the 5.25% to 5.5% range, “all eyes will be on the updated dot plot,” said Collin Martin, a director of fixed income trading at the Schwab Center for Financial Research.

“The median Fed projection from December suggested three rate cuts this year, and there’s a possibility that that gets revised to just two cuts,” Martin said. “Markets are still pricing in three cuts this year, so a downward revision to the dot plot would likely pull up Treasury yields.”

The rate decision arrives at 2 p.m. ET Wednesday, followed by Powell’s press conference.

Futures based on the SPX were little changed shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) rose about 0.2%. Futures based on the Dow Jones Industrial Average® ($DJI) lost 0.1%.

Morning rush

  • The10-year U.S. Treasury yield (TNX) was down slightly over one basis point at 4.29%.
  • The U.S. Dollar Index ($DXY) was up about 0.3% at 104.11.
  • The CBOE Volatility Index® (VIX) was up 0.15 at 13.97.
  • WTI Crude Oil (/CL) was down about $1.21 at $81.52.
  • Bitcoin (/BTC) was up about 0.3% at $63,731.

What to watch

With rate cuts seemingly off the table for at least the next few months, Powell’s comments and the FOMC’s dot-plot projections will be one key to the market’s near-term direction. In December, the dot-plot suggested policymakers expected three quarter-point cuts in 2024, which would drop the funds rate target to around 4.75%. But that was before the first two months of 2024 produced stronger-than-expected inflation readings.

For now, the Fed remains in “pause” mode, referring to the period between the final hike in a cycle and the first cut, according to Schwab Chief Investment Strategist Liz Ann Sonders and Senior Investment Strategist Kevin Gordon. The probability of a June rate cut is “about a coin flip,” they added.

The stock market’s record rally has been attributed in part to expectations the Fed was on the verge of a “pivot” to a rate-easing cycle, which could lower corporate and consumer borrowing costs and carry other perceived benefits. But Sonders and Gordon cautioned against embracing “generalities” in terms of market behavior during or after shifts in Fed cycles.

“Many assume that once the Fed has finished hiking rates in a cycle, it’s smooth sailing for stocks,” Sonders and Gordon wrote. “But history shows that in the six-month period following the final hike in a cycle, the S&P 500 was up only 36% of the time.”

Read more from Sonders and Gordon in “Emotional Rescue: Markets, Fed Policy, and Elections.”

Investors waiting for the FOMC gathering to wrap up might want to watch for the Energy Information Administration’s (EIA) Weekly Petroleum Status Report, scheduled for release at 10:30 a.m. ET. WTI Crude Oil futures rallied nearly 6% over the week ended Tuesday and briefly topped $83 per barrel, the market’s highest point since early November.

The rally over the past week has been driven by concern over supply disruptions following Ukrainian attacks on Russian oil refineries, as well as an unexpected drop in U.S. crude supplies in last week’s EIA report. U.S. crude inventories as of March 8, at 447 million barrels, were about 3% under the average for the past five years, the EIA reported a week ago.

Stocks in spotlight

Semiconductors remain in focus Wednesday as shares of Intel (INTC) jumped in premarket trading following reports the company has been awarded as much as $8.5 billion in funding from the CHIPS Act, which is aimed at encouraging semiconductor production in the U.S.

Another major chipmaker, Micron Technology (MU), is expected to report results after the market closes. Micron Technology shares have climbed 10.2% so far this year, slightly lagging the 13% gain posted by the Philadelphia Semiconductor Index (SOX).

In addition to Micron Technology, discount retailer Five Below (FIVE), food processor General Mills (GIS), and homebuilder KB Home (KBH) are also expected to report results Wednesday.

Thursday brings expected quarterly results from FedEx (FDX), the big shipping company that some view as a gauge of economic activity. Accenture (ACN), Darden Restaurants (DRI), Nike (NKE), lululemon athletica (LULU), and Shoe Carnival (SCVL) are also expected to report results Thursday.

Chipotle Mexican Grill (CMG) surged in premarket trading after the restaurant chain announced its board approved a 50-to-1 stock split, one of the largest splits in New York Stock Exchange history.

Tuesday in review:

Stocks started the day mixed to lower but buyers emerged around midday, lifting the S&P 500 index to a gain of 0.4%, while the Nasdaq Composite® ($COMP) added 0.6%. Energy companies were among the market’s strongest performers behind the recent rally in crude oil prices. Industrials, consumer discretionary, and utilities were also firm.

Eye on the Fed

Early today, futures trading pegged chances at 99% of the FOMC leaving rates unchanged at this week’s meeting, according to the CME FedWatch Tool. The market prices in a 91% chance the funds rate will remain unchanged after the Fed’s May meeting.

 Expectations for a Fed cut in June have also been tempered. Odds for a quarter-point rate cut following the FOMC meeting that month are now about 55%, down from 58% a week ago, based on the FedWatch tool.

CHART OF THE DAY: FRAYED SOX? The Philadelphia Semiconductor Index (SOX—candlesticks), which includes Nvidia and other major chip companies, has dropped sharply from a record high in early March. On Tuesday, the index broke under a trend line drawn from late October lows (yellow arrow), before bouncing back and closing with a “hammer” candlestick formation (blue arrow), a potentially bullish technical signal (the blue and purple lines are the 20-day and 50-day simple moving averages). Read more below. Data source: S&P Dow Jones Indices. Chart source: thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest


Hammer time in semis? Semiconductor shares beat a sharp retreat from record highs reached earlier this month, but some signs have emerged that downside may be dissipating. The Philadelphia Semiconductor Index (SOX), which includes Nvidia (NVDA) and 29 other major chip companies, tumbled as much as 11.4% from a record intraday high March 8 and on Tuesday pushed under a trendline drawn from October lows, a seemingly bearish technical signal. But SOX rebounded and clawed back much of Tuesday’s decline, closing with a “hammer” candlestick chart pattern.Often, on a pullback, a hammer can indicate a potential price reversal area, as it conveys an area where interested buyers were discovered,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. He noted that the SOX dropping over 10%, considered by some the threshold for a correction, may have lured back some buyers. Semiconductors are still one of the market’s strongest-performing sectors behind a wave of AI-driven bullishness, with the SOX posting a year-to-date gain of almost 13% against an S&P 500 up 8.6%.

Going aisle-in on digital groceries: Americans are loading up their digital shopping carts like never before. While foot traffic at bricks-and-mortar supermarkets has surpassed pre-pandemic levels, shoppers are ramping up online grocery purchases at an even faster pace, according to a report by Jones Lang LaSalle (JLL). Grocery e-commerce sales surged over 18% in 2023 to $186.5 billion, and are forecast to rise another 17% in 2024, according to the JLL report, which cited eMarketer data. Over the next four years, grocery e-commerce sales are expected to grow 80% and by 2026 will become the largest e-commerce category, exceeding apparel, electronics and furniture, eMarketer said. “Digital grocery wasn’t just a pandemic-era flash in the pan,” eMarketer said. “Consumers have made a permanent shift to purchasing essential goods online.” An accelerating shift to online grocery shopping would seem to paint a bright future for third-party intermediaries such as Instacart (CART) that partner with big supermarket chains to pick up and deliver the goods. Instacart shares have gained 57% so far this year but are still down 12% from a post-IPO peak of $42 in September.

Calendar


March 21: February Existing Home Sales, February Leading Economic Indicators, and expected earnings from FedEx (FDX), Nike (NKE), lululemon (LULU), and Darden Restaurants (DRI).

March 22: No major earnings or data expected.

March 25: February New Home Sales.

March 26: Durable Goods orders, S&P CoreLogic Case-Shiller Home Price Index.

March 27: EIA Weekly Petroleum Status Report.

Print

Key Takeaways

  • FOMC dot-plot projections, Powell conference loom as key influencers

  • Semiconductors remain in focus ahead of Micron earnings

  • U.S. shoppers loading up digital grocery carts like never before

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