The stock market lost some of its mojo last week with rates rising in the wake of some hotter-than-expected inflation data, but it looks to have regained that mojo over the weekend in front of a big week for the AI trade and the monetary policy trade.
Currently, the S&P 500 futures are up 38 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 214 points and are trading 1.2% above fair value, and the Dow Jones Industrial Average futures are up 65 points and are trading 0.2% above fair value.
Those are nice indications for the bulls and they have been underpinned by strength in the mega-cap stocks.
Alphabet (GOOG), up 5.3%, is the biggest mover in that regard as investors have been energized by a Bloomberg report that Apple (AAPL) is talking to Alphabet about building the Gemini AI engine into its iPhones. NVIDIA (NVDA), meanwhile, is up 2.7% in front of its GTC Conference, and Tesla (TSLA) is up 3.9% with Elon Musk saying in an X post that the price of the Model Y will increase $1,000 in a few weeks (note: TSLA is down 34% for the year).
NVIDIA is at the heart of the AI trade, so there is a lot of hopeful anticipation about what CEO Jen-Hsun Huang might say at the GTC Conference.
There will also be a lot of interest in what the Bank of Japan (BOJ) decides at its policy meeting tomorrow (Japan time). Previews suggest the BOJ is likely to vote to exit its negative interest rate policy, which was put into place in 2016. If so, that would mark the first rate hike by the BOJ since 2007.
Then, the attention will shift to the Fed’s meeting on Wednesday. The market knows there will be no change in the target range for the fed funds rate. The center of attention this time will be the Fed’s dot-plot and what it shows in terms of the median number of rate cuts expected in 2024. The last dot-plot projected three rate cuts this year.
Anything less than that would be construed as a hawkish signal from the Federal Reserve, yet the remarks shared by Fed Chair Powell at his press conference will also be an important qualitative component influencing the market’s reaction to the Fed decision.
The Reserve Bank of Australia, the Swiss National Bank, and the Bank of England will also be holding policy meetings this week. The People’s Bank of China for its part will be considering the course for its 1-yr and 5-yr loan prime rates. The market is expecting both to remain unchanged at 3.45% and 3.95%, respectively.
There was some mixed economic data out of China that has stirred some speculation about China continuing to pursue stimulus efforts. The Shanghai Composite rose 1.0% Monday, having digested the news that February retail sales were a tad weaker than expected, industrial production was stronger than expected, fixed asset investment was stronger than expected, and the unemployment rate was higher than expected.
Elsewhere, the Treasury market continues to trade with some agitation. The 2-yr note yield is unchanged at 4.70% and the 10-yr note yield is up two basis points to 4.32%. Where market rates go in the wake of central bank decisions this week should have some outsized influence on where the stock market goes this week in the wake of those decisions.
There are no decisions yet, but participants have apparently decided at this point to buy into weakness, putting the major indices on track to start the session on an upbeat note.
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Originally Posted March 18, 2024 – Decision week
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