After a sleepy end to 2023, the market is expected to return to full throttle this week with a host of data that will likely help determine whether the more than six rate cuts planned for 2024 will be a fantasy or a reality.
Right now, six rate cuts in 2024 seem more fantasy than reality, especially given the great work the “market” (as with stocks, bonds, currencies, and options) has done. accomplished to ease financial conditions since the December FOMC meeting.
The Fed has talked about the possibility of three rate cuts in 2024, and the market has interpreted that to mean six, and that’s nothing new. The market tends to have the mindset of a child, and when you give it an inch, it takes a mile. However, economic data and Fed minutes will likely push back against the idea of six rate cuts in 2024.
Generally speaking, I have been bearish on the stock market because I thought inflation would remain higher and the economy would remain stronger than expected. create a higher and longer political pathwith higher rate environment lwe end up with multiple contractions and keep control over stock prices. After having correctly seen the July rally peakThings seemed to be going according to plan until the end of October, as the index returned to 4,100. But then, things suddenly and unexpectedly changed in November following the announcement of the Treasury reimbursement. Then the Fed threw gasoline on the fire when it failed to push back against the recent easing of financial conditions. This propelled markets even higher, leading to a painful year-end rally from the analysis that took months to gather. However, a chance for a repeat presents itself this week.
Data may grow back
On Tuesday, JOLTS data is expected to show the number of job openings will reach 8.86 million in November from 8.733 million in October. Generally speaking, the JOLTS figure is one of the most difficult numbers for analysts to understand and is often subject to large revisions, but the trend is clearly downward.
Indeed’s job postings data shows that the number of job postings has declined steadily but, for the most part, stabilized in recent months. The data shows that since December 1, 2021, JOLTS and Indeed data have generally followed a similar trend when indexed to 100. But more recently, JOLTS data has separated some, which could explain why analysts are looking for a price increase. JOLTS data in November. This could even suggest positive revisions to October data.
The Fed has often cited the ratio of the number of job openings to the number of unemployed as a labor market indicator. This ratio has fallen significantly recently, suggesting a better labor balance between workers and opportunities.
The hope is that as balance returns to the labor market, wage growth will slow, helping to curb inflation, and for the most part it has worked, with wage growth having steadily declined in recent months according to numerous indicators.
The average hourly wage is falling and is currently around 4%. However, this figure remains higher than the pandemic average of around 2.55%. Additionally, the Atlanta Fed’s wage growth tracking index remains very high at 5.2% and well above its 3% average.
Jobs data released Friday is expected to suggest the economy remains healthy, with analysts forecasting an average of 170,000 new jobs created in December, up from 199,000 the previous month, while the unemployment rate rose from 3.7% at 3.8%. At the same time, the average hourly wage is expected to increase by 0.3% m/m, compared to 0.4% m/m, and by 3.9% year-on-year, compared to 4.0% in November.
Even if they are moving in the right direction, the wage figures would be inconsistent with an inflation rate of 2%. They suggest that real wages will likely continue to rise, which is a very good thing for the consumer and could provide them with additional purchasing power, especially as inflation begins to stabilize around this area of 3%. Wages, generally speaking, would have to fall by around 3% to be consistent with an inflation rate of 2%, assuming a productivity rate of 1%.
Added to the employment figures will be the publication of the December FOMC minutes, which could also throw some cold water on the six rate cuts planned for 2024. Since the Fed meeting, some Fed officials came out and rebuffed the measures taken. market assessment of Fed rate cuts.
Some of the most vocal against rate cuts will now be voting members this year and were not voting in 2023. New voting members for 2024 will be Atlanta Fed President Raphael Bostic, San Francisco Fed President Francisco, Mary Daly, and Richmond Fed President Thomas Barkin. , and Cleveland Fed President Loretta Mester.
Raphaël Bostic recently note that the Fed could begin cutting rates during the third quarter of 2024 if inflation continues to fall as expected. Loretta Mester recently said that the markets got too far ahead, thinking that the Fed would quickly normalize its rates, which it does not see. Marie Daly recently noted that even if the Fed cut rates three times in 2024, policy would still be quite restrictive. Well, even Thomas Barkin commented on the difference between the summary of economic projections and the markets, but he noted that looking back over the last year has seen what appears to have paid off.
The four new voting members for 2024 appear to object to the market assessment, which will likely be reflected in the minutes when they are released this week.
While the data supports the idea that the market has gone too far ahead of the Fed, the Fed minutes also strongly reflect a lack of urgency to cut rates. It then seems more likely that rates will rise across the entire yield curve, which could lead to further steepening, and the market would find itself out of the game again.
This could shock markets as a whole, especially given the sharp drop in rates, the extent of the stock market rally and the weakness of the dollar. This could undo much, if not all, of the moves that have occurred in the last three weeks. However, the odds seem to favor the Fed going against the market at the December FOMC, which failed miserably.