US Market Ahead: A Tense Balance of Growth, Earnings, and Fed Expectations

April 1, 2024

As the US stock market looks ahead to a new week and quarter after closing its first quarter on a high note, investors find themselves at a crossroads, balancing optimism with caution. The S&P 500’s significant gain of over 10% in the Q1 2024, the largest since a nearly 13.1% jump in early 2019, was driven largely by the performance of key technology and growth stocks, such as Nvidia and Meta Platforms. Yet, as we step into the second quarter, the focus shifts toward the Federal Reserve’s next moves, the health of upcoming earnings, and the resilience of the US economy.

The market’s rally, which also saw a broadening into cyclical sectors and small-cap stocks, faces a critical juncture. The Federal Reserve has yet to signal a clear path towards interest rate cuts, with the market’s earlier expectations of six to seven cuts in 2024 now adjusted to just three, amidst signs of a robust US economy. This recalibration sets a high bar for economic reports, which could potentially trigger volatility in the event of any setback.

Economic indicators due this week, including ISM manufacturing data, service sector insights, and the much-anticipated non-farm payrolls report, are expected to shed light on the economy’s direction. Analysts are eyeing a job growth figure of 198,000 for March, a key determinant of market sentiment and Fed policy decisions moving forward.

The upcoming earnings season is another focal point for investors. After a surprising 10.1% growth in S&P 500 earnings in the last quarter of 2023, expectations have moderated, with analysts forecasting a 5.1% earnings growth for the first quarter of 2024. The resilience of corporate earnings amid high interest rates and their impact on consumer and corporate spending will be critical in shaping the Fed’s policy stance and the market’s direction.

There is also a potential slowdown in the market rally as the Fed approaches its decision on interest rates. Historical patterns suggest a tempering of gains following the first rate cut after a cycle of hikes. However,  it is also worth to note that the market’s strong momentum in the first quarter has often carried over into the second, offering a glimmer of hope for continued advancement.

In summary, investors will have to balance between the optimism on the growth prospects and keep an eye on the economic strength, earnings health and Fed’s actions. While the market has shown resilience, the interplay of these factors will dictate the pace and direction of movement.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.


Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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