What to watch this week

The Federal Reserve told the stock market what it wanted to hear last week.

News Wednesday that the central bank still expects to cut interest rates three times this year pushed stocks to record levels. Despite the pullback on Friday, the major averages finished the week with gains north of 2% across the board.

Next week, a holiday-shortened trading week welcomes investors looking to finish out a strong first quarter of the year, with the Nasdaq (^IXIC) and S&P 500 (^GSPC) on pace for double-digit percentage gains.

The economic calendar will bring investors the highlights of the week on Friday morning with financial markets closing for Good Friday when the February PCE price index is released.

This report contains “core” personal consumption expenditures inflation, the Fed's preferred measure, which is expected to show moderate monthly price increases from the previous month.

The balance of the economic calendar will be highlighted by housing data and consumer confidence measures, while the earnings calendar will be generally quiet with Walgreens Boots Alliance (WBA) and McCormick (MKC), the largest companies by market cap, scheduled to report results.

The future of the Federal Reserve

During the first quarter of the year, the Fed and investors worked to reach an agreement.

When 2024 began, investors expected the Fed to cut interest rates six times, or by a cumulative 1.5%. The Fed indicated in December that three cuts, or a total of 0.75% rate cuts, would be more likely.

The two sides had found common ground before Wednesday's announcement. The Fed's assertion that the markets were “correct” also sent stocks to record highs.

With the Fed revising its GDP forecast, downwardly revising its unemployment forecast, and holding its interest rate forecasts steady, the central bank has more or less issued an “all clear” on the 2024 economic story.

“Our main takeaway from the March FOMC meeting is that the Fed has fully embraced the positive supply-side narrative,” Michael Gapen, a US economist at Bank of America, wrote on Thursday.

The story continues

“Significant upward revisions to growth have not led to similar declines in unemployment or significantly firmer inflation. Despite the expectation of much stronger growth, the Fed views the declining trend in inflation as remaining.”

Encouragingly for investors, Fed Chairman Jerome Powell once again reiterated that interest rates are likely to be at the peak of this current tightening cycle while demonstrating what Gabin called the Fed's “asymmetric reaction function.” This basically means that the Fed is happy to cut interest rates when times are good (that is, when growth is strong and unemployment is low), and will be happier to cut interest rates when growth stalls or unemployment rises.

Housing, consumers and inflation

The biggest economic data point of the week will come as markets close on Friday.

Economists expect “core” PCE inflation to rise 0.3% from the previous month in February and 2.8% from a year earlier. As you remember, the Fed targets an inflation rate of 2%.

During his press conference on Wednesday, Powell said male Wednesday that Federal Reserve estimates indicate that this number is lower than the consensus. Following Powell's comment, Neil Dutta at Renaissance Macro Remind people on X Inputs from the Consumer Price Index (CPI) and Producer Price Index (PPI) reported earlier in the month “get you almost there” on the PCE inflation estimate. We note that both indicators surprised to rise this month.

“Our maps of CPI and PPI data suggest a smaller 0.3% rise in the core personal consumption expenditures deflator last month,” Nancy Vanden Houten, chief U.S. economist at Oxford Economics, wrote in a note on Friday. “That's not low enough to give Fed officials more confidence that inflation is on track to reach the 2% target, but it at least confirms that the strength in January was mostly a one-off.”

Elsewhere on the economic calendar, the Conference Board will release consumer confidence data for March on Tuesday. This reading comes after the index declined last month for the first time since November 2023. In January, the index reached its highest level in two years.

The IPO window is open

Amid last week's hype around the Federal Reserve, investors also witnessed one of the most interesting IPOs in some time on the market as Reddit (RDDT) began trading on the New York Stock Exchange on Thursday.

Shares of the social media platform closed at $45.94 on Friday, giving the company a market value of $7.3 billion. On Wednesday night, the IPO was priced at $34 per share, with net proceeds of $748 million. again in 2021, Reddit raised $410 million With a valuation north of $10 billion.

A natural follow-up question is whether Reddit's debut opens the so-called IPO window to a host of other companies looking to go public.

Yahoo Finance's Josh Schaeffer spoke to renowned finance professor Jay Ritter, who said this won't lead to a boom in companies going public. Noting that Reddit and others — like Instacart's parent company Maplebear (CART) — have had to conduct “down rounds,” or take valuations below their previous fundraising level, during their IPOs, many companies will still be reluctant to test the market the public.

Veteran technology reporter Axios' Dan Primack argued Friday This week's fundraising – which saw more than $5 billion raised globally – means “we're done waiting for market conditions to improve” or “uncertainty”. “If a company has numbers or a story to go public, the only barrier is inertia.”

I think both arguments are valid.

Companies go public for many reasons. Some need to raise capital. Others need liquidity for investors and early employees. Others may be spun from some type of private ownership structure.

For venture-backed companies, the layer from which Reddit emerged, avoiding decline is certainly the goal. Moreover, many companies have raised large amounts of money during the pandemic, making the need for more money an issue for tomorrow. Whether venture-backed or not, no company wants to lose value under over time.

But Reddit investors and employees were (and still are!) sitting on windfall gains that can only be achieved through general market liquidity. Even if the rating is lower than the high level recorded yesterday.

Regarding Primack's point, the excuses made by management teams as to why the IPO was delayed wouldn't hold up in today's market, the Reddit debut is proof positive.

The company's valuation is down about 25% from the fundraising two and a half years ago. But the issue was well received, with shares priced at the high end of the range marketed to investors.

One criticism of the IPO process is that shares are priced according to a single day's Reddit stock price, not to find the valuation that raises the most capital for the company. In essence, these events are for bankers, not investors or employees. But of course they are.

In the long run, the value of Reddit or any other company will be determined by the market and will be subject to forces that frustrate or confuse executives, insiders, employees, and others. But this is the modern financial system After a roller-coaster of two years, companies have the opportunity to share in the fun on a large scale.

Economic calendar

Monday

Economic data: New Home Sales, February (+2.1% expected, +1.5% previously); Dallas Fed Industrial Activity, March (13 expected, -11.3 previously)

Earnings: No notable companies are set to report results.

Tuesday

Economic data: Durable Goods Orders, February (+1.4% expected, -6.2% previously); FHA Home Price Index, January (previously +0.1%); S&P CoreLogic Case-Shiller Home Prices, January (+0.2% expected, +0.21% previously); Conference Board Consumer Confidence, March (107 expected, previous 106.7); Richmond Fed Manufacturing Index, March (previously -5)

Earnings: McCormick (MKC), GameStop (GME), Nsino (NCNO), Progress Program (PRGS)

Wednesday

Economic data: MBA Mortgage Applications, Week Ending March 22 (previously -1.6%)

Earnings: Carnival (CCL), Land's End (LE), Cintas (CTAS), Paychex (PAYX), RH (RH), Braze (BRZE), Rumble (RUM)

Thursday

Economic data: Q4 GDP growth, third estimate (+3.2% annual pace expected; +3.2% annual pace previously); Initial jobless claims, week ending March 23 (previously 210,000); Pending Home Sales, February (previously -4.9%); University of Michigan Consumer Confidence, March (previously 79.4); Kansas City Fed Industrial Activity, March (previously -4)

Earnings: Walgreens Boots Alliance (WBA)

Friday

Economic data: PCE Price Index, March (+0.4% expected, +0.3% previously); “Core” PCE Price Index, March (+0.3% expected, +0.4% previously); Annual PCE price index, March (+2.5% expected, +2.4% previously); Annual 'Core' PCE Price Index, March (+2.8% expected, +2.8% previously); Personal Income, February (+0.4% expected, +1% previously); Personal Spending, February (+0.5% expected, +0.2% previously); Good trade balance, February (-$89.7 billion expected, -$90.5 billion previously)

Earnings: Markets are closed on Good Friday.

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