However, markets and the Fed are optimistic of guiding the economy to a soft landing when they dial back interest rates later this year, potentially as soon as June but robust data favours July based on current implied probabilities.The Fed met in March and provided an updated version of its summary of economic projections for 2024, 2025, 2026 and the ‘long-run’.
The appetite for riskier assets like stocks has accelerated and according to the Bank of America, $56.1 billion made its way into US equity funds in the week to March 13th, beating the previous record of $53 billion in March 2021. Technology funds unsurprisingly also hit a record of $22 billion over the same period., even if it gets delayed somewhat. Furthermore, stocks may continue to receive a boost for FY 2024 due to it being an election year.
As mentioned previously, the strong jobs market is helping spur on the US economic machine but consumer savings profiles have changed for the worse. Stored up savings from stimulus checks have been drawn down but consumption remains high. This means consumption is being financed using credit that attracts high interest rates, a pattern that personal credit card data confirms below.
Lastly, contrarian indicators like the CNN’s Fear and Greed Index has remained at extreme levels for some time. In previous cases when markets were spurred on by greed or FOMO, a turning point eventually reveals itself. More recently the gauge has remained elevated with the S&P 500 continuing to rise unabated.