Stocks Hit Record Highs Despite Fed Delaying Cuts to Interest Rates, Here’s Why. And 5
If you said at the start of the year the Federal Reserve would not cut interest rates at its March meeting, as had been widely expected some months ago, but all three major stock market indexes would regardless reach record highs on the same day, you may have had some funny looks.
But that’s exactly what happened Wednesday.
One reason can be found in the Fed’s own economic projections. GDP growth is now expected to be 2.1% in 2024, up from 1.4% in its December forecast.
In other words, the economy continues to race along. That’s helping boost corporate earnings despite inflation proving a bit sticky and interest rates staying higher for longer than previously expected. The artificial intelligence boom has fueled the rally as well.
The Fed signaling that it still sees three rate cuts in 2024, despite recent hot inflation data, was also comforting for markets. Traders are increasingly confident the first cut will come by June, pricing in a 74% chance early Thursday up from 59% a week ago, according to CME’s FedWatch tool.
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The market view on rates is not necessarily reliable—at one point early in the year, markets saw a 90% chance of a March cut. The shift in expectations did nothing to derail the stock market’s seemingly unstoppable ascent to all-time highs but if June comes and goes without a cut things may be different.
The prospect of a global rate-cut cycle getting started soon is realistic, though. Switzerland became the first major economy to cut rates Thursday in a surprise move by the
However, Swiss inflation has been below 2% since June last year, in contrast to the U.S. which has yet to reach that target.
In its enthusiastic march higher the market may have missed, or purposefully ignored, the prospect of an era of higher interest rates. Powell said his instinct was that rates “will not go back down to the very low levels that we saw [in the 2010s],” at the post-decision press conference.
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That’s a problem for another day, though. For now, it’s time to enjoy the rally as stocks march higher.
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Central Bank Officials Still Expect 3 Rate Cuts This Year
The Federal Reserve kept interest rates unchanged and forecast that they would have three quarter-point rate cuts by the end of the year, despite recent higher-than-expected inflation readings. That forecast sent all three U.S. stock market indexes to record-high closes.
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- Fed Chairman Jerome Powell suggested policymakers aren’t deterred by the strong labor market or higher inflation readings. He said strong hiring alone wouldn’t delay rate cuts and that overall inflation has been coming down gradually “on a sometimes-bumpy path.”
- Powell noted that inflation had been stickier than anticipated over the past two months and said policymakers shouldn’t be dismissing data just because they don’t like what they see. But the recent data haven’t changed the fact that inflation is drifting back toward 2%.
- The Fed maintained its projection that the median federal-funds rate would hit 4.6% by the end of the year. Federal-fund futures for December match the Fed’s 4.6% forecast. The CME’s FedWatch tool put the probabilities of rates holding steady in May at 92% and the first cut in June at 71%.
- In a new set of economic projections, two of 19 officials projected no cuts this year, and another two saw just one cut. Most see a modestly slower pace of rate cuts next year, with their benchmark rate reaching just below 4% at the end of 2025.
What’s Next: The Summary of Economic Projections expects gross domestic product growth to hit 2.1% by the end of 2024, up from December’s 1.4% forecast. Officials see inflation trending higher than previously projected, and core personal-consumption expenditures ending the year at 2.6%, up from December’s 2.4%.
—Nicholas Jasinski, Karishma Vanjani, and Janet H. Cho
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Apple Could Be Hit With U.S. Antitrust Lawsuit This Month
The Department of Justice will be filing a long-anticipated lawsuit against Apple possibly as soon as this month, alleging antitrust behavior on the part of the tech giant, Barron’s has learned.
- The case could conceivably challenge Apple’s core business model, as it would likely focus on the iPhone and other hardware and its App Store ecosystem. It would argue the company unfairly disadvantages tech rivals by making it harder and more costly for them to compete.
- According to several individuals familiar with the investigation, the exact timing of the suit is unclear, but representatives of Apple have met with officials in the DOJ’s antitrust division in a so-called last rites meeting in an attempt to head off litigation by the government, but the two sides were far apart.
- Bloomberg earlier reported that the DOJ could sue as soon as Thursday. Apple and the Department of Justice declined to comment.
- Apple shares fell 1.3% in aftermarket trading Wednesday after gaining 1.5% during regular trading hours. The stock is down 7.2% this year.
What’s Next: For years, Washington has debated whether or not to take action against alleged overstepping by powerful tech-platform companies. With an incipient lawsuit against Apple the government would now be fighting four of them in court. The DOJ already has two suits against
Alphabet
’s
Google, and the Federal Trade Commission has filed against
-parent Meta Platforms and
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in other cases.
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Reddit Stock Set to Trade After Pricing at Top of Range
Reddit priced its highly anticipated initial public offering at $34 a share—the top end of its target range—putting the social-media platform’s valuation at $6.4 billion. That is a sign of investor enthusiasm as Reddit stock prepares to begin trading today on the New York Stock Exchange.
- Wall Street is hoping for a rebound for new stock offerings. After a record 2021, when nearly 400 companies went public in the U.S. and raised $142.4 billion, IPOs slowed to 179 companies generating a combined $27.1 billion in the past two years, according to Renaissance Capital.
- Start-up
maker of connectivity chips used to build cloud and AI infrastructure for customers including Nvidia,
and
Intel
,jumped 46% above its $36 IPO price in its opening trade Wednesday and closed up 72% to $62.03—possibly an omen for Reddit.
- How Reddit makes money has come under increased scrutiny. Reddit’s total 2023 revenue of $804 million was 21% higher than in 2022. But Reddit isn’t yet profitable, and total costs and expenses last year were $944.19 million, up from $838.86 million in 2022.
- CEO Steve Huffman says advertising is Reddit’s core business, according to the registration statement. He said advertisers can find “high-intent” customers on Reddit that they can’t find elsewhere. Reddit is also known for its WallStreetBets message board, home of meme-stock traders.
What’s Next: Reddit is making some of the IPO shares available to its most prolific users, or Redditors, and other investors, though some have taken to the WallStreetBets message board to say they aren’t participating in the IPO and may even bet against the stock.
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Micron’s Revenue Surging as AI Boom Sparks Memory Demand
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is also getting a boost from the rush to artificial intelligence, boosting demand for its high-bandwidth memory needed to develop generative AI applications. The company is forecasting higher-than-expected third-quarter revenue after soaring past expectations in the second quarter.
- For the February quarter, Micron’s revenue jumped 58% to $5.82 billion, and adjusted profit of 42 cents a share, compared with a projected loss. For the May quarter, Micron forecast revenue around $6.6 billion and adjusted profit of 45 cents a share, give or take 7 cents.
- CEO Sanjay Mehrotra said the company saw robust price increases as the supply-demand balance tightened for memory chips, driven by factors such as strong AI server demand. Micron sees rapid growth in demand for high bandwidth memory.
-
is using Micron’s latest chips in its next-generation processing units, for example. Mehrotra also said the race is on to create artificial general intelligence, or AGI, requiring ever-increasing model sizes, and as a result the thirst for more memory.
- Mehrotra expects data center server shipments to grow in the mid-to-high single digits in calendar 2024, driven by AI. He noted that the company’s supply of high-bandwidth memory is sold out for 2024, with most of the 2025 supply already allocated, too.
What’s Next: Mehrotra said the company expects prices to further increase for memory chips throughout 2024, and said Micron expects record revenue and much improved profitability in fiscal 2025. The company will have “several hundred million dollars” of revenue from high-bandwidth memory in fiscal 2024.
—Eric J. Savitz and Liz Moyer
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Auto Makers Given More Time for Stricter Emissions Goals
The Biden administration’s new standards for vehicle emissions will give auto makers more time to comply as the industry shifts toward greater adoption of electric vehicles. The rules require that new vehicles in 2032 emit about half as many carbon emissions as those that go on sale in 2026.
- A slower shift toward EV adoption comes after the auto industry pressed hard for more time. EV demand has slowed, and the auto industry has shifted investments to hybrids, the build out of the nation’s charging network, and battery factories.
- Annual sales of zero-emissions cars, or battery-electric vehicles, would rise from roughly one million a year to nine million by 2032 under the new rules, an increase of about 28% annually between 2023 and 2032, compared with the administration’s previously proposed goal, with an implied growth rate of about 32%.
- Both
and
said they agreed with the EPA’s goals and are committed to the EV transition. The United Auto Workers union said the more feasible emissions rule protects workers building internal-combustion-engine vehicles while auto makers work to reduce emissions.
- Auto makers announced $160 billion in new EV technology investments over the past four years and created 100,000 new manufacturing jobs. Pew Research found EVs to be politically polarizing, with about 25% of Republicans saying they would consider getting an EV compared with 65% of Democrats.
What’s Next: The Environmental Protection Agency estimates $100 billion in annual net benefits, including $13 billion in public-health gains from improved air quality. EPA Administrator Michael Regan said the rules would slash seven billion tons of climate pollution, give drivers more choices, and save them money.
—Janet H. Cho, Al Root, and Liz Moyer
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Crypto-market participants have been hoping that the recent launch of spot bitcoin exchange-traded funds would draw financial advisors—who oversee trillions of dollars in client assets—into the space.
However, as bitcoin continues to trade near record-high levels, many financial advisors are holding mixed views on the asset. MarketWatch talked to a few advisors to find out what they’re thinking.
For more on this, read here.
—Frances Yue
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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
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