Jerome Powell didn't exactly say "mission accomplished" last week, but that's largely what the markets heard on Wednesday. In the wake of the December Federal Open Market Committee meeting, which showed 75 basis points worth of cuts expected in 2024, the Dow hit its all-time high and the 10-year yield fell below 4% for the first time since late July.
Some market watchers think that the first rate cut will happen at the March meeting after a run of remarkable gains. The QQQ ETF is now up about 55% on the year. More recently, duration-sensitive sectors have been on a tear. The regional bank ETF KRE is up 38% just since late October, as I mentioned recently. And the Vornado Realty Trust, a nice proxy for commercial offices, is up 60% in less than two months.
There will be plenty of data that will bolster a March rate cut or bicker with it between now and then, beginning with some key metrics rolling out this week. But the big thematic question many of us are asking: Is the economy strong enough to justify optimism and rallying stocks, but weak enough to justify rate cuts in March? As usual, psychology is going to play a big part, and two Federal Reserve officials Friday threw a little pessimism into the mix by calling a March rate cut "premature."
With the fall in yields. we've also seen a fall in mortgage rates, which are now below 7% nationally. By the standards of the last decade or so, they're still quite high. But by the standards of the last few months, they're low. It'll be interesting to see whether there's a psychological boost big enough to trigger more housing activity. On Monday, we get the latest National Association of Home Builders market survey, so we'll see if builders, whose stocks are at all-time highs, are feeling better. On Tuesday we get the latest look at building permits and housing starts. And then on Wednesday, we get mortgage applications. So plenty of housing data is on the menu.
