Monday, February 26, 2024

The Stock Market Faces Critical Test As Investors Await New Data And Fed Minutes

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New York – The stock market is heading into a critical day, with major economic data and Federal Reserve meeting minutes set for release. Investors have bid up stocks in recent weeks, betting on an “immaculate everything” scenario of smooth economic conditions ahead. That optimistic consensus faces an important test on Thursday.

The S&P 500 index has rallied almost 15% since mid-October, recovering nearly all of 2022’s losses. The tech-heavy Nasdaq is up over 20% in that period. This rebound is based on assumptions of a soft landing for the economy, a less aggressive Fed, strong corporate earnings and geopolitical calm.

Analysts caution that markets may be getting ahead of themselves. “The stock market has a consensus now that everything is going to be immaculate – the landing, the Fed, interest rates, earnings, adoption of AI, Russia, China, and the Middle East,” said market strategist Sam Arora. “The stock market is assuming a 90% probability of seven rate cuts.”

Fresh economic data may challenge these optimistic narratives. The Institute for Supply Management’s manufacturing index is due at 10am ET, with economists forecasting a reading of 47.1%, below the 50% threshold separating expansion and contraction. Job openings data from the Labor Department’s JOLTS report will offer insights into still-tight labor market conditions.

At 2pm, minutes from the Fed’s December policy meeting will be parsed for signals about rate trajectory. After that gathering, Chair Jerome Powell pivoted to a more dovish tone, boosting markets. But analysts will look for indications if policymakers were fully united in that shift. Comments from Richmond Fed President Tom Barkin have already cast some doubt.

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“As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents,” said Arora. He advises continuing to hold long-term positions while allocating cash to hedges and tactical trades based on risk tolerance.

So far, early trading has seen stocks edge lower while tech giants like Apple, Tesla and Amazon show positive money flows. The momo crowd of speculative traders is buying the dip while smart money investors take a more cautious stance. Market indicators remain neutral ahead of the data.

All eyes are on whether markets can maintain the “immaculate everything” mindset after absorbing the latest economic news. A strong ISM print and dovish Fed minutes could spur a renewed rally to new highs. But any negative surprises may force investors to rethink their cheerful narratives.

If the data is not supportive of immaculate everything, expect momo gurus to come up with a new narrative to try to run up the stock market,” said Arora. For now, prudence may be the best approach for investors as optimism faces a reality check.

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Gold and Oil Markets Eye Data and Fed

The major asset classes beyond stocks are also awaiting potential market-moving signals from Thursday’s data and Fed minutes.

Gold prices have pulled back in recent weeks as dollar strength and rising yields tarnished the precious metal’s appeal. Early trading on Thursday saw gold down slightly as speculative traders sold on the rumor of a more hawkish Fed tone. Smart money investors are staying patient pending the concrete details.

Analysts say gold remains sensitive to rate trajectory and dollar moves. While gold may struggle if the Fed minutes take a surprise hawkish turn, a dovish message could provide renewed tailwinds.

Oil markets are similarly sticking to a holding pattern before reacting to any policy clues. Prices bounced in recent sessions after hitting nearly one-year lows in December. For now, the momo crowd is bidding oil higher while smart money takes a wary stance.

Much depends on whether strong economic data cools recession fears that have weighed on crude demand outlooks. Signals of Fed pivoting back to rate hikes could also prove a headwind for prices. Like stocks, oil markets rode the optimism wave but face an impending reality check.

Eyes on Bitcoin as Cryptoverse Awaits ETF Decision

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Cryptocurrencies are also bracing for potential near-term catalysts. Bitcoin edged back above $42,000 on Thursday after stronger risk appetite helped it recover recent losses. But the crypto market remains on edge ahead of a long-awaited decision on Bitcoin exchange-traded funds (ETF) in the U.S.

Rumors swirled this week that the Securities and Exchange Commission could finally approve a spot Bitcoin ETF after years of rejection. But other reports suggested the SEC may once again deny applications from financial giants like Fidelity. The regulator has until January 10 to provide guidance.

Cryptocurrencies rallied last year on hopes that ETF approval could open the floodgates to greater mainstream adoption. The SEC has regularly dashed those hopes before with rejections or delays. The cryptoverse expects a final decision in the coming days.

Prices may gyrate wildly in either direction based on the outcome. Approval could send Bitcoin back toward the $50,000 threshold while rejection may see losses accelerate. For now, traders eagerly await regulatory clarity.

Thursday’s stock market action, meanwhile, may set the tone for anticipated volatility around next week’s Consumer Price Index inflation data. With markets riding high on optimistic narratives, investors are hungry for confirmation that the positive outlook has solid foundations. If data fails to deliver, markets may face a bumpy reassessment of the “immaculate everything” consensus.

Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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