The U.S. stock market rally will face a crucial test in the upcoming week, as two major events are set to take place that could impact market trends. The rally, which has lasted for four months, has been fueled in part by investors’ expectations that the Federal Reserve will cut interest rates in 2024.
First up is Federal Reserve Chairman Jerome Powell’s semiannual testimony before Congress on Wednesday and Thursday, followed by the official February jobs report on Friday. Analysts and investors believe that the non-farm payrolls data in the jobs report will have a significant impact on market trends. If the number of new jobs created exceeds the average expectation of 190,000, it could signal that inflation will continue to rise.
In January, data showed that 353,000 new jobs were created and average hourly earnings increased, despite interest rates being at their highest level in over 20 years. Additionally, both consumer and producer price readings in January were higher than expected, indicating rising inflation levels.
Fed funds futures traders have scaled back their expectations for rate cuts, aligning more closely with the three cuts signaled by the Fed. The stock market has seen significant gains as a result, with the S&P 500 rising 1% last week and the Nasdaq Composite climbing 1.7%.
Federal Reserve Chairman Powell is expected to emphasize the need for confidence in inflation reaching the Fed’s target before considering rate cuts. Powell’s testimony before Congress could lead to various scenarios, including a possible delay in rate cuts or a suggestion of the necessity for a rate cut to maintain economic momentum.
Financial markets will be closely watching Powell’s testimony and the upcoming jobs report for any indications of future rate cuts. The reaction in the futures market could impact both long-dated Treasuries and risk assets. Analysts remain cautious, noting concerns about inflation levels and the need for further data before any decisions on rate cuts can be made.
Overall, the U.S. stock market faces uncertainty in the coming week as investors await key economic data and Fed Chairman Powell’s testimony. The outcome of these events could shape market trends and potentially impact the future of interest rates in the U.S. economy.