04 March 2024

S&P 500 Rises as Fed Hints at New QE

Editorial cartoon of a Federal Reserve official giving away free money to traders at the U.S. stock market. Image generated with Stable Diffusion DreamStudio Beta, modified with text.

For a week that was otherwise shaping up to see stock prices drift sideways to lower, the unexpected news the Fed is weighing a new policy that would potentially reduce short term interest rates helped push the S&P 500 (Index: SPX) to a new high on Friday, 1 March 2024. The index rose a little over 1% above where it closed the previous Friday to close out the week at 5,137.08.

Almost all of that upward movement happened on Friday, 1 March 2024 after the Federal Reserve Governor Christopher Waller hinted at the 2024 U.S. Monetary Policy Forum that he wanted to Fed to boost its holdings of shorter-term U.S. Treasuries. The move represents a new kind of quantitative easing, which would have the effect of lowering short term yields on U.S. Treasuries and, by extension, other short term interest rates linked to them.

The prospect of lower interest rates is positive for stocks, particularly for firms that rely on debt to finance their growth. Stock prices reacted by jumping upward after having been mostly flat-to-lower during the earlier part of the week. The latest update of the alternative futures chart shows the change with the trajectory of the S&P 500 moving up toward the upper end of the recently added redzone forecast range.

Alternative Futures - S&P 500 - 2024Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 1 Mar 2024

Other things happened to influence the trajectory of stock prices during the week that was. Here's a summary of the week's market moving headlines:

Monday, 26 February 2024
Tuesday, 27 February 2024
Wednesday, 28 February 2024
Thursday, 29 February 2024
Friday, 1 March 2024

The CME Group's FedWatch Tool still projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 12 June 2024 (2024-Q2), unchanged from last week.

Meanwhile, the Atlanta Fed's GDPNow tool's latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) dropped to +2.1% after clocking in at +2.9% two weeks ago.

Image credit: Stable Diffusion DreamStudio Beta. Prompt: "Editorial cartoon of a Federal Reserve official giving away free money to traders at the U.S. stock market."