As the Fed delivers the results traders want, the market rally is set to extend

THE FOMC the news was good for the market despite not indicating when the first interest rate cut would come. While the timing of the reductions is questionable, the Powered reaffirmed the prospect of three twenty-five basis point cuts this year, three next year and three for 2026, ultimately bringing the target rate to neutral soon after. The point is that the WE The economy is on the verge of an economic pivot that will unleash activity, increasing revenue and profits S&P500 NYSEARCA: SPY companies. That’s why the market is in rally mode, but there are risks.

Improving growth prospects send the S&P 500 to new highs

The S&P 500 rose to new highs as growth prospects are improving across all sectors. Numerous analyst revisions were released within the first 18 hours of the FOMC statement, raising the 2024 GDP target by 70%.bps at 2.1%. The FOMC also upgraded its assessment of the labor market, calling it strong from moderate in the previous statement.

The risk for markets is that inflation persists at above-normal levels until mid-year, altering the FOMC’s policy stance. Government and consumer spending will support economic growth and sustain a higher level of inflation for longer. Powered Chief Jerome Powell made clear that the committee would keep rates higher “for longer, if appropriate” if the data doesn’t cooperate. At present, the data is highly questionable.

The latest CPI index showed an acceleration in inflation compared to the previous month at the headline and core levels, with YOY inflation accelerating on the main front and core inflation hotter than expected. The next reading of the PCE price index is in a week and will likely confirm this news. This puts the Fed in a difficult position regarding cuts: the jobs mandate is met and inflation is still high. Economists also raised their targets for the PCE in 2024, raising the consensus by 20 basis points to 2.6%.

Peak rates are here, but lower rates may not arrive as soon as expected

The FOMC says it will cut rates three times this year, but time is quickly running out. There are only six fights left this year, and with no cuts planned before the summer, they only have a few fights left to complete their mission. As it stands, the timing of the first cut continues to shift, and will likely shift further as the spring progresses, due to housing markets, resilient consumer spending and oil prices.

The housing market remains stagnant, but business conditions are sufficient to support rising home prices. Shelters were a major driver of the CPI increase in February, up 0.4% month-over-month and 5.7% year-over-year, with no reductions expected. An interest rate cut would be counterproductive for the Fed because it would empower the housing market.

Gasoline has also been a significant driver of inflation, and the impact could grow. Gasoline prices were down from last year, but showed the biggest monthly gain of all component, up 3.8%. The cause? Oil prices are on the rise, up 17% compared to the December lows and rising on consumption and geopolitical risks. Cutting rates too soon would increase energy demand and oil prices, supporting inflation.

And the consumer? Retail sales were slightly below expectations for February, but solid with an increase of 0.6%. No signs of recession and forecasts for the year are on the rise. Economists at the National Retail Federation raised the target range from 2.5% to 3.5%, up from 2.6% in 2023.

Is the S&P 500 Index Moving Towards a Hard Ceiling?

The S&P 500 is in rally mode and could continue to rise until late spring or early summer. The risk is that inflation data does not cooperate, leading the FOMC to once again postpone the timing of cuts. In this scenario, there wouldn’t be three cuts this year without an economic downturn, and a recession seems unlikely.

Why the market is pricing in a significant acceleration in the S&P 500’s earnings power for the back half, based on interest rate cutsthe higher level for a longer period will affect the outlook and lower the market valuation. The index is trading well above its long-term average P/E ratios, 30-day EMA, 150-day EMA, and any technical targets that can be called strong. It is set up for a deep fix when the fix comes; so yes, the S&P is moving towards a potentially hard ceiling and could reach it by late spring.

Before you consider the SPDR S&P 500 ETF Trust, you’ll want to hear it out.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and SPDR S&P 500 ETF Trust wasn’t on the list.

While the SPDR S&P 500 ETF Trust currently has a “hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here