The Dow Jones (US30) surged significantly yesterday, starting Thursday’s trading near $39,681, reaching new historical highs following the Federal Reserve’s decision yesterday, which maintained interest rates at 5.5% as markets anticipated.
Despite the interest rate hold, the Fed adopts a cautious tone as Federal Reserve Chairman Jerome Powell conspicuously ignored recent inflation data, focusing instead on expectations that price growth will continue to slow towards the Fed’s 2% target.
The bank revised its short-term outlook, expecting inflation to drop to around 3.9% for the year compared to the previous 4.6%. The Fed still anticipates about three interest rate cuts in 2024, totaling approximately 75 basis points by year-end.
Among the thirty companies listed in the Dow Jones index, only three remained in the negative zone yesterday following the recent Federal Reserve interest rate decision.
I believe the U.S. stock markets are poised for an uptrend due to increased risk appetite in anticipation of interest rate cuts from the Federal Reserve. The consumer sector rose by over 1.3%, followed by a rebound in the communications sector by 1.2%. The healthcare sector continues to struggle, declining by around one-third of a percent yesterday.
From my perspective, although the Federal Reserve’s statement following last January’s meeting removed the phrase “additional tightening of monetary policy,” suggesting no need for further interest rate hikes, the phrase “the Committee remains very attentive to inflation risks” remained present in yesterday’s March statement. This indicates continued policymakers’ concerns about inflation despite assurances regarding the inflation’s ongoing response and decline.
I believe Federal Reserve officials do not see it appropriate to cut interest rates until they have more confidence that inflation is sustainably declining towards the targeted 2%, even if Powell did not give much weight to recent Producer and Consumer Price Index data, which came in significantly above market expectations.
Fundamentally, the performance of the U.S. economy, job data, economic growth indicators, as well as geopolitical developments, and government policies, significantly influence the movement of stock market indices. As markets react sharply to news and current developments, I believe investors should stay out of the market for now and closely monitor ongoing events with great focus to determine the future price trend from current levels.
