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March Market Insight
Although condensing the thousands of factors that contribute to financial market behavior into only a few major variables is no easy task, we examine several key drivers we all know heavily influence investor activity. First, Federal Reserve monetary policy remains restrictive, but the Fed has indicated it will be more accommodating in 2024. Thus, interest rates will decrease as inflation continues its downward path. What is unknown, even to the Fed, is the timing and magnitude of these declines. Moreover, reductions are not likely to be linear. Second, U.S. economic output remains healthy as employment conditions continue to defy naysayers. Those employed enjoy reasonably strong wage gains as 9 million jobs remain available. With unemployment at only 3.7%, consumers continue to spend at a reasonably healthy pace, acting as a tailwind to domestic economic expansion. Finally, estimated 2024 earnings are forecast to increase nearly 10% from last year, which would be the largest annual increase in three years. The stock market has performed spectacularly since October after the Fed laid out its plan to reduce rates well into 2025. Investors may have displayed a bit too euphoric stance in the short-term, but this positive sentiment may well be justified over the long-term. We see no major downside potential, though we are prudently reducing risk where appropriate given the recent price expansion.