Markets Await PCE/Core-PCE Inflation Data

March is turning out to be an eventful one for Wall Street. U.S. stock markets suffered fluctuations in the first half of this month owing to market participants’ concerns about the timing of the first reduction in the Fed fund rate, following resilient labor market data and sticky inflation rate in February.

However, Wall Street regained its mojo last week, especially after the Fed’s March FOMC meeting. The central bank kept the benchmark lending rate unchanged in the range of 5.25-5.5%. The range of the Fed fund rate has been steady since July 2023. Its current level is the highest in 23 years.

The Fed’s latest “dot-plot” (a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC) shows the benchmark lending rate coming down to 4.625% at mid-point by the end of 2024. The existing mid-point of the Fed fund rate is 5.375%. This indicates three rate cuts of 25 basis points each.

Following the March FOMC decision, the CME FedWatch tool shows a 75% probability of the first rate cut in the June FOMC meeting. This probability was 60% just before Powell’s post-FOMC statement.

Last week, the blue-chip Dow rose nearly 2%, marking its best week since December 2023. The broad-market Index – S&P 500 and the tech-heavy Nasdaq Composite advanced 2.3% and 2.9%, respectively.

Last week was also important for the IPO market with the debut of Astera Labs Inc. (ALAB) and Reddit Inc. (RDDT). These two companies are the first notable venture-backed tech companies to go public in the United States since September 2023. Investment banker Morgan Stanley (MS) was the lead manager of both IPOs.

This week, investors are waiting for a series of key economic data. These include: New Home Sales, Case-Shiller home prices, pending home sales, Conference Consumer Confidence and University of Michigan’s Consumer Sentiment Index, the third and final estimate for Q4 2023 U.S. GDP and the most important PCE and core-PCE inflation data of February.

In the past month, several noted economists and financial researchers have projected an astonishing outlook for the S&P 500 Index. Barclays raised the S&P 500’s target for 2024 to 5,300 from 4,800 owing to the strong earnings of big techs. The firm said that if tech giants continue to outperform in the upcoming quarters, its bull case for the benchmark will be 6,050.

Yardeni Research forecast the S&P 500’s year-end 2024 target at 5,400. Thereafter, the index is expected to rise to 6,000 in 2025 and 6,500 in 2026. Capital Economics predicted that the S&P 500 could reach 6,500 by 2025-end if the ongoing euphoria surrounding artificial intelligence (AI), especially generative AI, continues. Société Générale lifted its 2024 target for the benchmark to 5,500 from 4,750.

Recently, The Goldman Sachs Group Inc. (GS) stuck to its year-end 2024 S&P 500 forecast at 5,200. Yet, the global investment management giant projected its bull case for the S&P 500 at 6,000 by the end of this year, depending on the performances of mega-cap techs.

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