S&P 500 Rises as Fed Hints at New QE

For a week that was otherwise shaping up to see stock prices drift sideways to lower, the unexpected news the Fed is weighing a new policy that would potentially reduce short term interest rates helped push the S&P 500 (Index: SPX) to a new high on Friday, 1 March 2024. The index rose a little over 1% above where it closed the previous Friday to close out the week at 5,137.08.

Almost all of that upward movement happened on Friday, 1 March 2024 after the Federal Reserve Governor Christopher Waller hinted at the 2024 U.S. Monetary Policy Forum that he wanted to Fed to boost its holdings of shorter-term U.S. Treasuries. The move represents a new kind of quantitative easing, which would have the effect of lowering short term yields on U.S. Treasuries and, by extension, other short term interest rates linked to them.

The prospect of lower interest rates is positive for stocks, particularly for firms that rely on debt to finance their growth. Stock prices reacted by jumping upward after having been mostly flat-to-lower during the earlier part of the week. The latest update of the alternative futures chart shows the change with the trajectory of the S&P 500 moving up toward the upper end of the recently added redzone forecast range.

Other things happened to influence the trajectory of stock prices during the week that was. Here’s a summary of the week’s market moving headlines:

Monday, 26 February 2024

• Signs and portents for the U.S. economy:

• Oil gains over $1 on possible shipping disruptions
• US new home sales rise less than expected in January

Fed minions say rate cuts only delayed, still coming:

• Fed’s Williams says rate cuts likely to happen ‘later this year’
• Fed’s Schmid: No need to ‘preemptively’ cut rates

Dow, S&P, and Nasdaq ended lower while Treasury yields pushed up

• ‘Slam dunk’ Treasury trade becomes test of patience as yields march higher

Tuesday, 27 February 2024

• Signs and portents for the U.S. economy:

• US durable goods orders slump; business investment on equipment appears soft
• Oil rises more than $1/bbl as OPEC+ mulls extending output cuts
• US annual home prices rising despite fourth-quarter slowdown, FHFA says

Fed minions ‘cautious’ plan to hold rates high carries risk for distressed regional banks:

• Hawkish Fed impedes regional banks’ efforts to shed CRE risks
• Fed’s Bowman says she will stay ‘cautious’ on monetary policy

BOJ minions get data telling them to end never-ending stimulus:

• Japan’s inflation beats forecasts, end of negative rates in sight

ECB minions worrying about Eurozone banks not making more loans

• Euro zone lending stagnates as recovery remains elusive – ECB

Nasdaq, S&P, Dow remain rangebound in run-up to key inflation data this week

• This Is Nuts – An Entire Market Chasing One Stock

Wednesday, 28 February 2024

• Signs and portents for the U.S. economy:

• Oil falls 1% on Fed rate cut caution and stocks build
• Why US housing inflation relief may be short-lived

Fed minions say more ‘work’ needed to lower inflation:

• Fed’s Williams sees more work needed to get inflation back to 2%
• Fed’s Collins repeats it is ‘likely’ rate cuts will begin this year

Bigger trouble developing in China:

• Country Garden liquidation petition adds to China’s property woes

• Country Garden: How bad are its debt problems?

China’s Feb factory activity likely contracted for fifth month

Nasdaq, S&P, Dow end lower a day ahead of key inflation data

Thursday, 29 February 2024

• Signs and portents for the U.S. economy:

• Oil inches down as US inflation data, rising OPEC output weigh
• US inflation eases to 2.4%, according to Federal Reserve’s target index

• Services drive US prices higher in January; inflation gradually cooling

Fed minions expected to start cutting rates in June 2024, thinking about what to do next with balance sheet:

• Fed policymakers look past ‘bumpy’ inflation toward rate cuts

• Fed rate cut seen on track for June even as inflation bumps up
• Fed’s Goolsbee: policy ‘restrictive,’ more disinflation likely

Fed’s balance sheet endgame may play out over a longer-than-expected horizon

Mixed growth signs developing in China:

• Chinese firms step up hiring, but tight-fisted on pay

Bigger trouble developing in Japan:

• Japan factory output falls at the fastest pace in nearly 4 years

BOJ minion says it’s time to end never-ending stimulus:

• BOJ policymaker calls for overhaul of ultra-loose monetary policy

ECB minions get inflation data push to start rate cuts sooner, will probably wait until June:

• Euro zone inflation dips but stubborn core prices may worry ECB

• Dip in euro zone inflation bolsters case for ECB easing

ECB to cut rates in June, but economists split on risk around timing

• Exclusive: ECB to keep floor under market rates but with eye on demand

S&P, Nasdaq close higher as inflation data tightens rate cut view

Friday, 1 March 2024

• Signs and portents for the U.S. economy:

• US construction spending unexpectedly falls in January
• US manufacturing contracts further, rays of light on the horizon
• Oil climbs 2%, notches weekly gains ahead of OPEC+ decision

US Bank Crisis Looms As Deposit Outflows Accelerated Last Week, Loan Volumes Stagnate

Fed minions ‘optimistic’ inflated prices here to stay as inflation slows while looking forward to rate cuts, signals new Quantitative Easing:

• Fed policymakers look past ‘bumpy’ inflation toward rate cuts

• Fed’s Kugler ‘optimistic’ on disinflation without big job losses
• Fed’s Barkin: I still see wage, inflation pressures

Fed’s Waller: Thoughts on Quantitative Tightening, Including Remarks on the Paper “Quantitative Tightening around the Globe: What Have We Learned?”

• QT not quite “paint drying,” but having little impact so far -research
• Fed’s Logan: Fed will feel its way to balance sheet limit

Bigger trouble developing in China (and world because of China):

• China’s factory activity shrinks for 5th month, raises pressure for more stimulus
• Global factories struggle for growth as China demand remains weak

Nasdaq, S&P 500 kick off March with new record highs, Dow also advances

• ‘Everything’ Rallies On First Day Of March After Fed Hints At Next ‘QE’
• S&P 500, Nasdaq close at fresh records on AI boost, easing yields

The CME Group’s FedWatch Tool still projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 12 June 2024 (2024-Q2), unchanged from last week.

Meanwhile, the Atlanta Fed’s GDPNow tool‘s latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) dropped to +2.1% after clocking in at +2.9% two weeks ago.

Image credit: Stable Diffusion DreamStudio Beta. Prompt: “Editorial cartoon of a Federal Reserve official giving away free money to traders at the U.S. stock market.”