The U.S. stock market rally, fueled by expectations for interest rate cuts in 2024, faces a crucial test in the upcoming week with Federal Reserve Chairman Jerome Powell’s testimony to Congress and the official jobs report for February. Portfolio manager John Luke Tyner of Aptus Capital Advisors believes that more labor-market weakness may be needed to address inflation, which remains above the Fed’s objective.
The nonfarm payrolls data for February is expected to be a key market mover, as it could indicate the risk of inflation continuing to run hot if job gains exceed expectations. January’s data already showed strong job creation and wage growth, despite high interest rates.
While Fed-funds futures traders have adjusted their rate cut expectations, the market is still on track for a positive start to the year. Powell is expected to emphasize the need for confidence in falling inflation before considering rate cuts.
Analysts are closely watching Powell’s testimony and the jobs report for any hints on the timing or extent of rate cuts. The market reaction will likely be seen in fed-funds futures and longer-term Treasurys, depending on Powell’s comments.
Overall, the market is cautiously optimistic about the Fed’s approach to inflation and rate cuts, with concerns about the services side of the economy and the potential for sticky inflation. The coming week will also see a range of economic data releases and speeches from Fed officials, adding to the market’s volatility.
Stay tuned for updates on how the market reacts to Powell’s testimony and the latest economic data releases.
