by Hubert Marleau, Market Economist, Palos Management
January 28, 2024
The Fedās open market committee will meet this week. No change in the policy rate is anticipated. Chairman Powell will push back against the marketās expectation of sooner-rather-than-later rate cuts. The reason being that the economy is much stronger than generally believed, thanks to the surged in productivity. The latter has probably risen at another extraordinary annual pace in Q4/2023. My quest is 3.0%. It further explains why inflation has fallen so quickly. Indeed, the tide of inflation has clearly turned for the better. The TrueInflation Index is now up only 1.8% from last year.
The reduction in the inflation rate accounts for the recent bull-performance of the stock market. The S&P 500 is back to record levels, touching 4894 last week. It should be noted that the bull run was narrow and concentrated in the technology sector. As a matter of fact, all the other sectors of the S&P 500 are trading on average 15% below all-time high. While this situation may stall the rally in the immediate future, Iām still maintaining the view that the S&P 500 will nudge to 5400 sometime this year.
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