The S&P 500 stalled today, struggling to push forward its longest rally in roughly two years, while the Nasdaq Composite also experienced a downturn. The Dow Jones Industrial Average shed 109 points, marking a 0.3% dip.
“The market is starting to set up for the Fed moving to the sidelines, and we may get a soft landing,” Anthony Saglimbene, chief market strategist at Ameriprise, observed. “Equities were really oversold for the last couple of months, and they’re finally seeing a little bit of a rebound.”
Saglimbene pointed out that while the upcoming inflation and economic data will likely influence equity gains, current indicators suggest the economy is decelerating but not plummeting.
In corporate earnings, Rivian saw a near 2% drop despite surpassing expectations, and Robinhood tumbled 14% following a significant dip in trading volumes. Warner Bros. Discovery plunged 15% after reporting a loss wider than forecasts, whereas Roblox surged 17% on robust results.
This comes on the heels of a victorious session where the S&P 500 secured its seventh consecutive positive close, and the Nasdaq advanced for an eighth day. Both indices recorded their longest winning streaks since November 2021, with the Dow also completing a seven-day streak of gains.
As earnings season draws to a close, about 88% of companies in the broad index have reported, with a majority surpassing earnings projections. However, only 62% have exceeded revenue expectations, reflecting a slowdown in demand.
“All the big tech stocks have already reported; we kind of know where everybody is at this point,” Ken Mahoney, CEO of Mahoney Asset Management, mentioned. “So there really shouldn’t be too many surprises at this point.”
Mahoney added that the ongoing equity gains, particularly led by large-cap tech stocks, along with subdued central bank actions, could position the market favorably heading into 2024.
The trading session kicked off with remarks from Fed Chairman Jerome Powell, who addressed the state of the economy. In his speech, Powell steered clear of commenting on the Fed’s policy or economic outlook so soon after the FOMC meeting. Instead, he emphasized the need for the central bank to adopt a flexible approach, moving beyond complex mathematical simulations traditionally used for economic forecasting.
“Intellectual rigor has to be combined with flexibility and agility,” Powell stated, marking the 100th anniversary of the Fed board’s Division of Research and Statistics.
Powell acknowledged that even the most sophisticated models can be caught off guard by the economy’s surprises, especially during times of unforeseen shocks like a financial crisis or a pandemic. “At those times, forecasters have to think outside the models,” he said.
The Division of Research and Statistics, known as R&S, provides the Federal Open Market Committee with economic forecasts eight times a year, along with updates on current data and research on policy and economic topics. Currently led by Stacey Tevlin, the first woman at its helm, the division boasts a team of numerous PhDs.
Forecasting in the post-pandemic economy has proven challenging for the Fed. Throughout most of 2021, Fed staff labeled the surge in inflation as “transitory,” only to see it accelerate in 2022, hitting an annual rate peak of 7.1% in June.
The Fed’s track record over its 110-year history has been fraught with inaccuracies, often missing the mark on economic predictions, a trend that some argue is unlikely to change given the nature of economic crises that enable the Fed to inject trillions into the economy, often benefiting the wealthiest while leaving the rest of the country behind.
Odds are that the Fed’s assumed “soft landing” will be much harder than expected. Until we see clearer recession signs, however, investors could very easily remain optimistic about both the economy and a more dovish than hawkish Fed, boosting share prices in the process.
