Data-driven rate cuts

At the opening of the year 2024, during its January meeting, the FOMC Committee has kept interest rates at the range of 5.25% to 5.5%.[1]

The Fed's January meeting minutes highlighted officials' reluctance to cut rates unless inflation showed a sustained decline, emphasizing the risks associated with swift rate reductions. Fed Chairman, Jerome Powell consistently advocated for a cautious approach towards rate cuts, supported by positive labor and economic data. This view was again supported by the Fed during their last meeting, and at the same time they also supported the promise of three rate cuts by the end of 2024.

Lead up to the present

Stocks became volatile in early 2022 due to concerns about rising consumer prices that could lead to interest rate hikes. Aggressive monetary tightening by the Fed caused Treasury yields to spike and equities to fall as much as 25% by October 2022. Declining inflation and dovish Fed messaging brought a rebound in late 2023, and the S&P 500 Index* ended the year with a gain of 24% and continued to rise in an uneven start to 2024, reaching all-time highs in the second half of January of this year.[2] After the last Fed meeting in March this year, where the decision was made to leave interest rates unchanged with a renewed promise of three cuts by the end of this year, the index once again reached a new all-time high.[3] At the time of writing, the S&P 500 index is trading at 5203 points.

The significant increase in the index was mainly due to big technology firms and high hopes for artificial intelligence. Among the major factor was also the belief that the Fed's tighter monetary policy could control inflation without harming economic growth, often called a "soft landing" for the US economy. Supporting this idea are positive signs in areas like retail sales, producer price index or consumer sentiment indicating the cooling down trend and US economy's resilience.[4]

The anticipated recession from last year did not occur, and instead, the economy demonstrated signs of expansion, continuing into 2024. Same as S&P 500, the Dow Jones** also experienced recovery, with the gaining approximately 10% in 2023, closing above 37,000 points.[5] Despite fears of a possible recession, but the unchanged rates and promise of the Fed during their last meeting, the DJIA index managed to grow, close 400 points higher and set its record as of March 20..[6] At the time of writing, the Dow Jones index is trading at 39,297 points.

The year 2023 is a year of significant growth also for the Nasdaq*** index gaining 43%, although did not match its performance from 2021 or 2020.[7] Like other indexes, the Nasdaq is also influenced by interest rates and the Fed's monetary policy. Following the last march Fed meeting and the mentioned prospects of rate cuts alongside the current rate maintenance, the index saw further improvement, rising by 1.3% and reaching its all-time high, similar to the other indexes. In the case of this technology index, another growth catalyst was the demand for artificial intelligence, which is also carried over to 2024, with Nvidia dominating. At the time of writing, the NASDAQ COMPOSITE index is trading at 16,315 points.

Prospects for growth 

Following the index's recovery, some analysts have revised their outlook for the S&P 500 to 2024. Oppenheimer Asset Management, Société Générale, Bank of America and others predict a continued upward trend, citing economic resilience and strong performance by technology companies. In general, the predicted price is around 5 500, with the median for 2024 at 5 200. Banks such as Morgan Stanley and JP Morgan predict a pessimistic development with values between 4,200 and 4,500. [8]

As for the forecasts for 2024, the opinions of analysts are also diverse regarding the further development of the Dow Jones index. Presidential elections or ongoing geopolitical conflicts may or may not affect US indices and the market itself. Despite the traditional view that rate cuts should boost performance, history shows the potential reward for investors who take a break before monetary policy easing. Analysts of different banks predict different scenarios, from negative to positive in the price range from 34,000 to 45,000 with potential returns between -8.5% and +20%.[9]

Analysts anticipate a favourable year ahead for the NASDAQ-100, projecting its value to reach between 17,000 and 18,500 points in 2024. While banks such as Bank of America, Deutsche Bank, Societe Generale and others offer optimistic outlooks, JPMorgan presents a starkly pessimistic forecast, expecting a 10% decline. Their projection is attributed to reduced household savings and ongoing geopolitical tensions.[10] Nevertheless, interest rates and Fed decisions remain important factors as in the case of other indices. but added to this, the increasing enthusiasm in the field of generative artificial intelligence and innovation of technology companies will be the driving forces of this index

ARIFF AZRAEI BIN MOHAMMED KAMAL

Financial Analyst of Golden Brokers

* S&P500

Index S&P 500 or also known as Standard & Poor's 500 Index includes 500 major publicly traded US companies from various sectors, focusing on their market capitalization. It is a float-weighted index, meaning adjustments are made based on the number of publicly available shares of the included companies. It is widely regarded as one of the most frequently monitored indices due to its ability to accurately depict the overall performance of the US stock market,[11] with total market capitalization of more than $43 trillion.[12] The S&P 500 index includes such companies as Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta Platforms, Tesla, Berkshire Hathaway or JPMorgan Chase.

** DOWJONES

The Dow Jones Industrial Average (DJIA) contains 30 large publicly held companies, referred as blue-chip companies, from various sectors, such as Apple, Boeing, Goldman Sachs or Visa. It is a price-weighted index and can change based on economic trends, while the companies included in this index are traded on the NYSE and NASDAQ. The DJIA is an indicator of overall health of the US economy.[13]

*** NASDAQ COMPOSITE

The Nasdaq Composite Index is, together with abovementioned indexes, among the most followed indexes. Nasdaq follows more than 2 500 international and domestic companies listed on Nasdaq stock exchange. The index, weighted by market capitalization, places significant emphasis on the technology sector, followed by the consumer goods and healthcare sectors. Among the most weighed companies are Nvidia, Apple, Alphabet and others.[14]

[1] https://www.nytimes.com/live/2024/01/31/business/fed-meeting-interest-rates

[2] https://economictimes.indiatimes.com/markets/stocks/news/the-sp-500s-wild-ride-to-an-all-time-high/articleshow/107002125.cms?from=mdr

[3] https://www.barrons.com/livecoverage/stock-market-today-032024

[4] https://economictimes.indiatimes.com/markets/stocks/news/the-sp-500s-wild-ride-to-an-all-time-high/articleshow/107002125.cms?from=mdr

[5] https://capex.com/en/overview/dow-jones-price-prediction

[6] https://www.barrons.com/livecoverage/stock-market-today-032024

[7] https://www.cnbc.com/2023/12/29/tech-stocks-wrap-up-2023-rally-after-last-years-slump.html

[8] https://www.morningstar.com/news/marketwatch/20240325111/wall-street-revamps-2024-sp-500-targets-after-record-setting-stock-market-rally

[9] https://capex.com/en/overview/dow-jones-price-prediction

[10] https://capex.com/eu/overview/nasdaq-100-price-prediction

[11] https://www.investopedia.com/terms/s/sp500.asp

[12] https://www.globaldata.com/media/business-fundamentals/sp-500-index-grew-6-7-trillion-one-year-january-2024-finds-globaldata/

[13] https://www.investopedia.com/terms/d/djia.asp

[14] https://www.investopedia.com/terms/n/nasdaqcompositeindex.asp