The pivot is finally here: markets soar on Fed comments, Dow hits new record high and Currys sees progress in turnaround story

“Equity markets have enjoyed a hearty boost after Federal Reserve chair Jay Powell indicated further rate rises were not needed. While the market was already pricing in rate cuts from 2024, investors welcomed Powell’s comments with open arms. Having it spelt out was music to their ears,” says Russ Mould, Investment Director at AJ Bell.

“The market has been waiting a long time for this pivot in monetary policy and it’s finally come. The news sent the Dow to a new record high and put the S&P within a whisker of the 4,766-closing price achieved on 31 December 2021, just before the sharp interest rate hiking cycle began.

“The attention now shifts to when we could see rate cuts and it looks like May could be the magic moment.

“Many investors are hoping the more cuts we have, the greater the chance for markets to keep going up as long as we don’t see a serious recession. However, you have to consider why the Fed would need to cut rates in the first place – the obvious reason is to stimulate the economy in the face of slower growth. A cut in rates would be beneficial for consumers and businesses, but a slowing economy is hardly reason to celebrate as it makes it harder for companies to earn a profit.

“The past two years have seen investors worried about the impact of high inflation. Now we could see a shift in the narrative to worries about an economic slowdown. Consumers in the US are turning more to credit to fund purchases after a long period of using up cash savings, and plenty of companies are talking about weaker demand. Therefore, one might question how long the current market rally will last.

“Some investors might take the view that rate cuts will help to ease the pressure on businesses and consumers, while others might say cuts illustrate the fragility of the economy. This suggests the potential for more volatile market conditions in 2024.

“For the near-term, expect to see investors pile back into long duration assets such as infrastructure and property. These were sold down as interest rates went up so it makes sense to suggest they will come back into fashion as rates go back down. Just remember the stock market is forward-looking and investors will price in a lower rate environment well before it actually happens.

“The FTSE 100 jumped 2% to 7,699 after the Fed’s commentary on rates, with investors piling into a wide range of sectors. True to form, Ocado took the top spot on the blue-chip index as the poster child for a ‘risk-on’ market.

“The FTSE 250 index fared even better, rising 3.3% and putting the mid cap index back into positive territory for the year.”

Currys

“It was a good day to release positive news with the market in such a buoyant mood and today’s announcement from Currys, while not unblemished, certainly represented progress from the electronics retailer.

“For more than a year Currys has been a tale of Nordic noir as its previously reliable Scandinavian business has been beset by competitive pressures. Margins for this region being back at their level from two years ago will reassure shareholders that Currys is starting to put its problems behind it.

“Revenue is under pressure across the board, and the company chalked up a first-half loss, but it is telling it felt confident enough to stick with full-year guidance – hinting the Christmas trading period must be off to a solid enough start.

“There may be no return to the lockdown period when people had the means and motivation to snap up new electronic goods but Currys will hope as pressures on household budgets start to ease, appetite for buying larger ticket items will return.

“With a sale of its Greek business set to help on the balance sheet front, Currys is also seeing appreciable growth in its services business which is, for the most part, more profitable than the sale of electronic goods.”

These articles are for information purposes only and are not a personal recommendation or advice.