Stocks End Lower, Fed Leaves Rates Unchanged, But Hints Rate Cuts Might Have To Wait A Little Longer  Image: Bigstock Stocks closed sharply lower yesterday after the Fed signaled they were not likely to cut rates in March. At yesterday's FOMC announcement, the Fed, as expected, left rates unchanged. While their monetary policy statement no longer mentions 'additional policy firming,' Fed Chair Jerome Powell acknowledged that inflation has come down, but remains elevated, and they are "trying to get comfortable and gain confidence that inflation is on a sustainable path down toward 2%." But he followed that up by saying "I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting."
In yesterday's press conference, he used words and phrases like "not rushing," "we have a ways to go," and "more evidence" that confirms inflation is on its way to 2%. And that's because while they continue to stress the economy is "good," inflation risks remain uncertain. The takeaway is that the Fed is pleased to see inflation come down, is happy (and a bit surprised) the economy has not slowed that much (even though they still expect it to moderate), and that they are still likely to cut rates this year, just not likely it'll be in March. So the story of rate cuts in 2024 hasn't changed. Most knew the March timeline pushed by traders was way too aggressive. But they still appear to be the way. On that note, the pullback yesterday appears to be overdone. Because while the rate cut story hasn't much changed, the resiliency of the economy continues to impress. So the combination of falling inflation, and then falling rates, while simultaneously having a strong economy is a dream come true for the markets. And why it looks like we are headed much higher this year.
In other news, yesterday's MBA Mortgage Applications fell -7.2% w/w, with purchases down -11.4%, but refi's up 1.6%. The Chicago PMI slipped to 46.0 vs. last month's 48.1. And the ADP Employment report came in at 'just' 107,000 new jobs vs. the consensus for 158,000. On the earnings front, Boeing, Mastercard and ADP posted positive earnings surprises before the open yesterday to the tune of 34.7%, 3.25%, and 1.43% respectively. In spite of the market being down, Boeing was up 5.29%, Mastercard was up 0.91%, and ADP was up 3.01%. After the close, Qualcomm posted a positive EPS surprise of 15.6%, Align Technology posted a positive EPS surprise of 11.0%, and Methanex posted a positive EPS surprise of 85.7%. Today we'll hear from 165 companies, including mega-caps Apple and Amazon after the close. As for economic reports, we'll get Weekly Jobless Claims, the PMI Manufacturing report, the ISM Manufacturing Index, Construction Spending, and the Challenger Job-Cut Report. But the next big report that everybody is waiting for is tomorrow's Employment Situation report. Yesterday's dip could very well turn out to be a great gift before the next leg higher. As they say, "as goes January, so goes the year." In spite of yesterday's decline, it was a great month for the market with the Dow up 1.22% last month, the S&P up 1.59%, and the Nasdaq 100 up 1.85%. We could be looking at another great year. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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