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Markets Respond To Dovish Fed

Scott Poore, AIF, AWMA, APMA



Better than expected inflation numbers last week and dovish comments from Fed speakers pushed markets higher.

Despite the monthly PPI & CPI numbers coming in as expected or slightly lower than expected, year-over-year the numbers moved higher and there are still sticky elements to inflation, such as car insurance, transportation, and utilities. FOMC member Waller stated last week, "I don't think March can be ruled out for rate cut." And yet, futures on the Fed Funds Rate show June as the earliest expected rate cut at just over a 50:50 probability. Meanwhile, the Fed seems to be lessening liquidity via its reverse repo operations.


Meanwhile, equities are still over-valued and over-concentrated.

The top 5 stocks in the S&P 500 is equal to the market cap of the bottom 407 other holdings of the index. While this type of concentration has led to consecutive 20+ return years in the S&P 500, there is an 80% probability of at least a 10% correction when the market is as overvalued as it has become. In 2024, the S&P 500 did not trade below its relative 200-day Moving Average. In years when that happens, historically, the following year is more erratic in terms of returns. It's a shorter week on Wall Street so there is less economic data to digest, but plenty of speculation about the new administration in D.C. to keep investors guessing.

 

Disclosures


The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.


Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.


Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.


Past Performance does not guarantee future results.

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