Monday, 3/18/2024 p.m.

  • Stocks kick off the week on a positive note: Stock markets closed higher on Monday, with the technology-heavy Nasdaq outperforming both the Dow Jones and S&P 500. Investors were optimistic around technology and artificial intelligence (AI) sectors to start the week. This comes as there is growing speculation that Apple may be in talks to partner with Google's Gemini platform to help build an AI engine into the iPhone*. Also, NVIDIA kicks off its annual GTC conference for AI developers on Monday evening, with a keynote address from CEO Jensen Huang, who will layout his vision for NVIDIA and AI. Meanwhile, Treasury yields continue to drift higher, with the 10-year Treasury yield now over 4.3%, well above its lows of the year of around 3.9%*. The move higher in yields in part reflects the markets' updated view that the Fed may only implement two to three rate cuts this year, fewer than the six cuts forecast at the start of the year.
  • The Federal Reserve takes center stage on Wednesday: Market focus this week will shift to central-bank policy-rate decisions, with the FOMC scheduled to meet on Wednesday. Market expectations are for the Fed to hold rates steady at 5.25% - 5.50%*. The Fed will also deliver an updated set of economic projections and a new dot plot, which outlines the FOMC members' best guidance for the path of the fed funds rate over the next three years. Keep in mind that at the December Fed meeting, the dot plot indicated three rate cuts for 2024*, and investors will be watching carefully to see if the FOMC maintains this rate-cut outlook or perhaps shifts lower to just two rate cuts in 2024. In addition, investors will monitor whether the forecast for inflation remains intact and the Fed still expects core personal consumption expenditure (PCE) inflation to moderate to 2.4% annually this year*. Given that recent inflation readings have been modestly above expectations, there may be an adjustment higher to the inflation outlook for 2024. In our view, while the Fed may adjust 2024 figures, the overall direction of travel remains toward a rate-cutting cycle and gradually moderating inflation.
  • The Bank of Japan holds critical policy meeting this week: The Bank of Japan (BoJ) is scheduled to announce its policy decision on Tuesday, and forecasts are calling for the central bank to implement its first rate hike since 2007. This would bring the policy rate from -0.1% to the 0% - 0.1% range*. Currently, the BoJ is the only central bank globally that employs negative rates, which supports the economy with monetary easing. However, given that Japan's large labor organizations have recently negotiated wage increases, the BoJ feels more comfortable that economic conditions are in place for maintaining 2.0% inflation. In our view, if the BoJ brings its policy rate from negative to positive, this would serve as an anchor for global rates and could pull U.S. government bond rates modestly higher. The anticipation of the BoJ move is perhaps another reason that U.S. Treasury yields have moved toward the highs of the year in recent weeks.
     

Mona Mahajan
Investment Strategist

*FactSet


Investment Policy Committee

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