Powell Drops the Mic

Markets were weak ahead of last week’s FOMC meeting, as many investors expected the Fed to turn hawkish on Wednesday. Fed Chairman, Jerome Powell, surprised both bulls and bears by keeping 3 rate cuts on the table for 2024, downplaying the risk of an inflation reacceleration, and bringi9ng his concerns about slowing growth to the for front.  Assisting was Powell’s mention that QT tapering could begin “fairly soon”. Markets immediately rallied last Wednesday with the cash S&P 500 breaking the 5,200 level for the first time and closing at another new all-time high.

U.S. Treasury yields reversed early weakness and closed the week with 10-year yields down 10 bps to 4.2%. U.S. equity indexes hit new highs last week, with the S&P 500 ending up 2.3%.  Most global markets also rallied.  The Nikkei/Japa gained (+5.6%) and Nasdaq (+2.9%) led indexes.

Last week also brought new news on AI efforts at the largest tech firms with MSFT naming a consumer AI chief and Apple in talks to license Google’s Gemini for its products. Semiconductor stocks continue to be the leadership group within technology with Micron (MU) receiving the latest momentum push by the AI infrastructure buildout.   Up over +18% last week, the stock is gaining another +7.5% on further bullish weekend commentary from analysts as well as not being mentioned in China’s government “blacklist” of semi suppliers. Outside tech, cyclicals surged, with industrials, financials, and consumer stocks each rising more than +2.50%.

The Swiss National Bank became the first central bank in the developed world to cut rates by -25 bps to 1.5%.  Soon after, the Bank of Mexico also delivered its first cut of -25 bps to 11.0%. Mexico was a leader on the way up, first lifting rates in June 2021, and the full cycle saw +725 bps of hikes, outdoing the Fed by 200 bps in total.

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