U.S. stocks ended the month on a high note led by tech after key inflation data was slightly lower than expected.
The Fed’s preferred inflation guide – the personal consumption expenditures (PCE) price index rose by 0.3% in February, which was slightly lower than expected. The PCE price index, however, was up 5% from a year ago which is lower than January but well above the Fed’s 2% target.
The U.S. year ahead inflation expectation receded further at the end of March, reaching its lowest in 2 years at 3.6% for next year, down from 3.8% earlier in the month. This was probably a data point that led to the strength in the markets, as it gives hope that the Fed will pivot earlier than expected.
For the month, the Dow Jones average added 1.9%, the S&P 500 gained 3.5%, and the Nasdaq Composite climbed 6.7%.
For the week, the Dow Jones jumped 3.2%, the Nasdaq rose 3.4%, and the S&P soared 3.5%.
Here are the closing levels on Friday, 31st March 2023:
| Last | Change | %Change | |
| Dow Jones | 33,274.15. | +415.12. | +1.26 |
| S&P 500 | 4,109.31 | +58.48. | +1.44% |
| Nasdaq Comp. | 12,221.91. | +208.44. | +1.74% |
| US 10Y | 3.47% | ||
| VIX | 18.7 | -3.2 | -1.68% |
Last week, I mentioned that it is hard to fight the market even when we think it is wrong. That said, this week proved that the market has its own beliefs and continued to rally.
Granted the PCE data was slightly better than expected, it still is far from the 2% target of the Fed. While the market is pricing for rate cuts as early as June, it is highly unlikely at this point to see it happening.
Having said that, the market has set its course by believing in its own expectations on what the Fed will do, giving zero respect to the Fed and questioning its credibility.
Regardless of what the data suggests, such as the need for at least one more rate hike, the market seems impervious to such signals. Even if the Fed decides to hike rates in May, the market could still rally, defying expectations once again.
There seems to be nothing holding back investors from buying. Momentum funds, underweight portfolios, and FOMO just keep piling in, keeping the buy the dip strategy intact.
We will be seeing more rallies this week?
With a new month and a new quarter ahead, there may be new money coming in.
It’s market vs the Fed and so far. The market is winning big, and it would be risky to bet against it.
Source: CBOE, Bloomberg.
This commentary is written by James Gomes.
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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