Unexpectedly Intriguing!
01 April 2024
An editorial cartoon of a bull escaping from a pen after the gate has been opened by a Federal Reserve official.

The S&P 500 (Index: SPX) closed out its best quarter since 2019 at a new record high of 5,254.35.

The index has risen by just over 10% in value since 2023-Q4 ended, largely propelled by expectations the Federal Reserve would be cutting interest rates in 2024. That rise could have been even larger if the Federal Reserve had not doused investor expectations during the quarter. The rise of the S&P 500 during the 2024-Q1 has been restrained as the Fed first sought to first delay expectations for when it would begin cutting interest rates and then as Fed officials dialed back expectations for how much and how often they would act to cut rates during 2024.

As 2024-Q2 begins, the CME Group's FedWatch Tool 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 over the last few weeks but three months later than investors had anticipated at the end of 2023. The expectation that the Fed will begin a series of quarter point rate cuts starting on that date and continuing at mostly twelve week intervals is also unchanged over the last few weeks but is half as often as investors had expected they would take place in December 2023.

We find the trajectory of the S&P 500 is in the middle of the redzone forecast range we added to the alternative futures chart several weeks ago. Its trajectory continues to be consistent with investors focusing on 2024-Q2 in setting current day stock prices, which makes sense because the Fed's rate cuts are expected to begin before the end of the quarter. Here's the latest update of the chart:

Alternative Futures - S&P 500 - 2024Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 29 Mar 2024

Here's a summary of the market-moving news headlines that investors absorbed during the final week of the first calendar quarter of 2024:

Monday, 25 March 2024
Tuesday, 26 March 2024
Wednesday, 27 March 2024
Thursday, 28 March 2024

The Atlanta Fed's GDPNow tool's latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) ticked back up to +2.3% after dipping to +2.1% last week. That estimate falls within the upper end of the so-called "Blue Chip Consensus" forecast from early March 2024.

Image credit: Microsoft Bing Image Creator. Prompt: "An editorial cartoon of a bull escaping from a pen after the gate has been opened by a Federal Reserve official." We originally featured this image on 18 December 2023 and is still our favorite illustration of why the first quarter of 2024 was so good for the S&P 500.

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