Stocks have surged to record highs at the start of 2024.
Inflation has moderated, the Federal Reserve looks set to cut interest rates, and the vaunted “soft landing” for the US economy is coming into view.
The US economy and corporate America continue to prove resilient in the face of the Federal Reserve’s aggressive rate hikes.
This optimism reflected in recent market action and the economic consensus serves as the central theme of the latest Yahoo Finance Chartbook, which brings together more than 30 charts from some of Wall Street’s top strategists.
It marks a significant shift from the first Yahoo Finance Chartbook, published in August 2023.
Readers likely left the last edition waiting for a final shoe to drop before the US economy tipped into recession and the 2023 stock market rally ran out of gas. Seven months later, profit forecasts are on the rise and a new bull market has come into view.
Still, there remain concerns.
Consumer spending has held up, but wage gains are moderating and household debt balances are “becoming more challenging.” The path any Fed rate cuts may take comes with plenty of uncertainty. And November’s election is not to be ignored, even nine months away.
View as a slideshow (better for mobile)
This project would not be possible without the work of Yahoo Finance Senior Editor Brent Sanchez, who turned Wall Street jargon into a digestible visual presentation of the current market moment. And a special thanks to Yahoo Finance’s team of editors who worked on this project, including Myles Udland, Adriana Belmonte, Grace O’Donnell, Becca Evans, and Anjali Robins.
Most of all, thank you to all of the experts who contributed their time and thought to this project and helped make this Chartbook such a valuable snapshot in economic time.
The following commentary has been edited for length and clarity.
The inflation story
Goldman Sachs macroeconomics team led by Jan Hatzius
“Core PCE inflation fell surprisingly quickly in 2023, from a 4% annualized pace in the first half of the year to a 2% pace in the back half. We now expect the year-on-year rate to fall much more quickly in 2024 than we had expected just a few months ago, reaching 2.2% already by Q2. As a result, we think the FOMC will likely be comfortable cutting earlier and a bit more quickly than we had initially envisioned.”
Andrew Hunter, deputy chief US economist, Capital Economics
“The annual rate of core PCE inflation remains elevated, but in annualized terms, it has already been running in line with the Fed’s 2% target for the past six months. Despite claims from a number of commentators that the ‘last mile’ of getting inflation back to target will somehow be the hardest, this ignores the fact that we’ve already been there for half a year. Rather than a further slowdown, all the Fed needs to see is this current pace of price increases sustained for a few more months.”
Matthew Luzzetti, chief US economist, Deutsche Bank
“The Federal Reserve has surprised markets over the past month with a dovish pivot that kicked off the discussion around rate cuts. A key reason for the timing of this shift is the surprisingly quick deceleration in inflation. Softer inflation has, in turn, raised the prospect that Fed policy could overtighten in the coming months if the Fed does not begin to reduce rates. Such an outcome could put the soft landing at risk.
“The accompanying chart demonstrates how the real fed funds rate — measured as nominal fed funds minus spot inflation on a year-over-year basis — is likely to lurch higher as inflation falls. If the Fed does not reduce rates over the coming months, the real fed funds rate would begin to tighten to historically elevated levels that have often been followed by economic slowdowns or recessions.”
Nancy Vanden Houten, lead economist, Oxford Economics
“The Federal Reserve needs to be confident that inflation is on a sustainable path to 2% before lowering interest rates. … The decline so far has been led by declines in goods prices as supply chain snarls have been resolved. The key to the final leg down in inflation is slower inflation in services, including housing.
“As with the CPI, housing costs in the core PCE lag changes in actual rents; given weaker rent growth over the last several months, further declines in the housing component of core PCE are pretty much assured. Services inflation apart from housing is being propped up by higher wage growth, which the Fed would prefer to see at around 3.5% y/y [year over year]. We expect slower job growth will translate into ongoing moderation in wage growth as we move through 2023.
“We expect the y/y increase in core PCE to fall to about 2.7% in the second quarter and that that will be enough to trigger the start of Fed rate cuts in May. The Fed won’t…
Read More: 31 charts tell the story of markets and the economy to start 2024