Source: Zhitong Finance

The Federal Reserve told the stock market what the US stock market wanted to hear last week. Last Wednesday, the Federal Reserve still expected to cut interest rates three times this year. This news pushed the stock market to a record high. Despite a retracement last Friday, major stock indexes are still up more than 2% this week. This week, the US stock market's trading week will be shortened due to the holidays. This will also be the last trading week of the first quarter. Major US stock indexes are expected to hit new highs.$NASDAQ 100 Index (.NDX.US)$und$S&P 500 Index (.SPX.US)$Double-digit percentage gains are expected.

Economic data will bring investors this week's key highlights on Friday morning. Although the financial market is closed on Friday due to Good Friday, the personal consumption expenditure (PCE) price index for February will be announced at that time. The report includes “core” PCE inflation, which is the Federal Reserve's preferred measure of inflation, and is expected to show a slowdown in monthly price increases compared to the previous month. This week's news is relatively light, so the market will be mainly affected by housing data and consumer confidence indices. This week, the company$Walgreens Boots Alliance (WBA.US)$und$McCormick & Co (MKC.US)$Results will be announced.

The Federal Reserve's most favored inflation indicator is coming. Will the anti-inflation trend be as scheduled?

In the first quarter of this year, the Federal Reserve and investors worked hard to reach a consensus. Beginning in 2024, investors expect the Federal Reserve to cut interest rates six times this year, or a cumulative reduction of 1.5%. The Federal Reserve hinted in December last year that it is more likely to cut interest rates three times, or a total of 0.75%. Ahead of Wednesday's statement, the two sides had found common ground. The Federal Reserve's “right” affirmation of the market has pushed the stock market to a record high. As the Federal Reserve raised its GDP forecast, lowered its unemployment rate forecast, and kept interest rate expectations unchanged, the Federal Reserve more or less sent a signal of “lifting the alarm” on the 2024 economic outlook.

Bank of America economist Michael Gapen wrote on Thursday: “Our main conclusion from the March FOMC meeting was that the Federal Reserve fully accepted the positive supply-side statement. The sharp upward revisions to economic growth have not led to a similar decline in unemployment or a sharp rise in inflation. Although economic growth is expected to be much stronger, the Federal Reserve believes that anti-inflationary trends will still exist.”

Encouragingly, Federal Reserve Chairman Powell once again reiterated that interest rates may be at the peak of the current austerity cycle, while outlining what Gapen called an “asymmetric response function” of the Federal Reserve. In other words, basically, the Federal Reserve is happy to cut interest rates when the economic situation is good (that is, economic growth is strong and the unemployment rate is low), while when economic growth stagnates or the unemployment rate rises, the Fed is more willing to cut interest rates.

The most important economic data for the week will be released when the market is closed on Friday. Economists expect the core PCE price index, which excludes food and energy costs, to rise 0.3%. Previously, the index recorded its biggest monthly increase in a year, up 2.8% from the same period last year, and the Federal Reserve's inflation target was 2%. The overall index is expected to rise 0.4%, the highest level since September last year.

This will bring the annualized increase in core prices over the past three months to the highest level since May last year. At a six-month annual rate, the core personal consumption expenditure price index will also rise at an accelerated pace. Furthermore, some economists expect the January data to be raised after the government recently released consumer price and producer price data. In February, the index favored by the Federal Reserve to measure potential US inflation may still be at an uncomfortably high level, which shows why central bank officials are wary of cutting interest rates too early.

This is in stark contrast to the end of 2023, when inflationary pressure showed signs of falling back to the Federal Reserve's 2% target. Powell emphasized at the fifth meeting after keeping interest rates unchanged that bringing inflation back to target levels would be a gradual but bumpy path. He pointed out that the price data so far this year has neither boosted nor weakened the confidence of policy makers.

The personal consumption expenditure report will be released when the US stock market and bond market are closed due to Good Friday. The report is also expected to show stronger consumer spending growth in February and a steady increase in personal income. Second, the US government will release new home sales data for February on Monday, and durable goods order data on Tuesday. The third gross domestic product (GDP) estimate for the fourth quarter announced on Thursday will include government revenue and corporate profit data.

Bloomberg economists said, “The strong employment report and the rebound in retail sales in February suggest that the February personal income and expenditure report should also be very popular. Recruiting, wage increases, and increased working hours will boost personal income. Driven by car sales, personal spending may have increased, but other categories of spending seem tepid. Overall personal consumption spending inflation is likely to accelerate, even if core inflation slows...”

Powell pointed out at a press conference last Wednesday that the Federal Reserve's estimate of this figure falls short of consensus expectations. Following Powell's remarks, experts cautioned that the Consumer Price Index (CPI) and Producer Price Index (PPI) reports released earlier this month “give you almost complete understanding” of personal consumption spending inflation estimates. Both indices unexpectedly rose this month.

Nancy Vanden Houten, chief American economist at the Oxford Institute of Economics, wrote in a report on Friday: “Our comparison of CPI and PPI data shows that the core PCE deflator (PCE deflator) rose slightly by 0.3% last month. That's not enough to make Fed officials more confident that inflation is expected to reach the 2% target, but it at least emphasizes that January's strength was mostly one-off.”

In terms of other economic data, the World Federation of Large Enterprises will release consumer confidence data for March on Tuesday. Last month, the index declined for the first time since November 2023. In January of this year, the index reached a two-year high.

The IPO market ushered in a turning point

Amidst the hustle and bustle surrounding the Federal Reserve, investors also saw one of the most hyped IPOs in a while --$Reddit (RDDT.US)$The listing began on Thursday on the New York Stock Exchange. The social media platform's shares closed at $45.94 last Friday, bringing the company's market capitalization to $7.3 billion. On Wednesday evening, the IPO price was $34 per share, a net increase of $748 million. As early as 2021, Reddit raised $410 million and valued at over $10 billion.

The next question naturally is whether Reddit's initial public offering will open a so-called IPO window for many other companies looking to go public.

Jay Ritter, a famous finance professor, believes that this will not lead to a boom in company listings. Noticing that Reddit and other companies (such as Instacart's parent company Maplebear (CART.US)) had to “write down financing” during the IPO or get lower valuations than before, many companies are still unwilling to test the open market.

Dan Primack, senior Axios tech journalist, said on Friday that this week's funding — more than $5 billion in global funding — meant “we're no longer 'waiting for market conditions to improve' or 'uncertainty'.” If a company has enough data or reason to go public, the only obstacle is inertia.”

Both opinions should be correct. There are many reasons why companies go public. Some companies need to raise capital. Other companies need to provide liquidity for early-stage investors and employees. Other companies may be spun off from some kind of private ownership structure. For venture-backed companies (Reddit stands out from this group), avoiding the first round of funding is of course the goal. Additionally, many companies raised large amounts of cash during the pandemic, making the need for more capital in the future an issue. Also, with or without venture capital support, no company wants its value to decline over time.

But investors and employees of Reddit used to have windfalls that only open market liquidity could achieve. Even if the valuation is lower than yesterday's high. Primack's view is that, essentially, the management team's excuses about why they have to delay their IPO are untenable in today's market, and Reddit's debut is a sure proof.

Compared to funding two and a half years ago, the company's valuation has dropped by about 25%. However, the offering was very popular — the issue price was at the high end of the pricing range for investors.

One criticism of the IPO process is that the stock is priced based on the single-day surge experienced by Reddit shares, rather than finding a valuation for a company to obtain the most capital. Essentially, these activities are aimed at bankers, not investors or employees. In the long run, the value of Reddit or any other company will be determined by the market and influenced by forces that frustrate or confuse executives, insiders, employees, and others. After two turbulent years, there are great opportunities for businesses to join in.

Editor/jayden