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Perspectives

No Rate Cuts for You!!!

by Fortem Financial March 5, 2024

Why is the economy so strong? This seems to defy the normal and needed market cycles. The market came into 2023 expecting a recession, but one was nowhere to be found.

The market went into 2024 expecting six Fed rate cuts. That assumption would defy normal market cycles and conditions because you should never ease conditions into an economy that is not underwater or slowing dramatically. So, how did the market get it so wrong? The answer is surprisingly easy to reach. Too much government intervention too late in the economic cycle. The government flooded the zone with new unpaid cash while saying the Fed was going to cut rates with a backdrop of Quantitative Tightening policy to reduce the Feds balance sheet that never came to fruition.

The reality is that the US economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December. As a result, the Fed will not cut rates this year, and rates are going to stay higher for longer.

 

How do we come to this conclusion?

1. The economy is not slowing down, it is reaccelerating. Growth expectations for 2024 saw a big jump following the Fed pivot in December and the associated easing in financial conditions. Growth expectations for the US continue to be revised higher.

2. Underlying measures of trend inflation are moving higher.

3. Supercore inflation, a measure of inflation preferred by Fed Chair Powell, is trending higher.

4. Following the Fed pivot in December, the labor market remains tight, jobless claims are very low, and wage inflation is sticky between 4% and 5%.

5. Surveys of small businesses show that more small businesses are planning to raise selling prices.

6. Manufacturing surveys show a higher trend in prices paid, another leading indicator of inflation.

7. ISM services prices paid is also trending higher.

8. Surveys of small businesses show that more small businesses are planning to raise worker compensation.

9. Asking rents are rising, and more cities are seeing rising rents, and home prices are rising.

 

Financial conditions continue to ease following the Fed pivot in December with record-high Investment Grade Bond issuance, High Yield Bond issuance, IPO activity rising, M&A activity rising, and tight credit spreads and the stock market reaching new all-time highs. With financial conditions easing significantly, it is not surprising that we saw strong nonfarm payrolls and inflation in January, and we should expect the strength to continue.

The bottom line is that the Fed will spend most of 2024 fighting inflation. As a result, yield levels in fixed income will stay high.

Source: Piper Sandler

 

Market and Index Changes for the Week Ending 3/1/2024

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

Latest News

 

US services sector slows in February; inflation moderating

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Futures retreat as megacaps slide ahead of economic data

U.S. stock index futures dipped on Tuesday as investors awaited a slew of economic data and several key events this week, including appearances from Federal Reserve Chair Jerome Powell.

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Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

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