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Why Markets Cancelled Powell's Rate-Cut Pivot

The market abruptly reset its expectations for the Federal Reserve cutting interest rates. At first, it moved the goalpost to a March cut of 25 bps. After March’s 2024 inflation report, stock markets re-adjusted valuations for Nasdaq (QQQ), S&P 500 (SPY), and the small-cap sector (IWM).

What happened?

On April 11, 2024, U.S. producer prices rose, albeit less than economists expected. The Labor Department posted prices rising by 2.1% Y/Y, an increase not seen since April 2023. Investors quickly sold Treasury bills. Downward pressure on the 10-year (IEF) and 20+ year (TLT) will increase their yields. As yields approach 5.0%, stocks that gained the most may fall the most. Still, selling may vary. In the last week, JP Morgan (JPM) and Intel (INTC) fell by 7.4% and 7.8%. JPM stock is up by 7.5% YTD, while Intel lost 28.98% in 2024.

Markets realize the Fed is only one aspect of controlling inflation. The government must cut back on borrowing. Interest costs on the growing debt hurts consumers.
The government’s aggressive student loan forgiveness, infrastructure spending, and raising the debt ceiling all add to inflation. Investors may continue to buy stocks that grow from government spending. This includes RTX (RTX), Northrop Grumman (NOC), and L3 Harris (LHX).