February 22, 2024

The Fed can still break markets. Here’s how

A version of this story first appeared in CNN Business’s Before the Bell newsletter. Not a subscriber? You can sign up here. You can listen to an audio version of the newsletter via the same link.

New York

The major US indexes posted their fifth consecutive winning week on Friday, as strong corporate earnings and gains in Big Tech added to enthusiasm on Wall Street.

These gains came even as Federal Reserve officials tried to temper investors’ lofty expectations for a glut of rate cuts this year.

Investors still expect four to five cuts in 2024, according to the CME FedWatch Tool, even though Fed officials have repeatedly said it will likely be three at most. This discrepancy between expectations is starting to worry some economists and traders.

What is going on: Markets are rising to new records – the S&P 500 broke the 5,000 level threshold last week and the Nasdaq is on the verge of surpassing its previous high of 16,057. The American economy also seems to be chugging along: The unemployment rate remained at 3.7% in January, marking the 24th consecutive month that the country’s unemployment rate has been below 4%.

But that doesn’t mean the US has successfully avoided a recession.

The difference between a soft landing – where inflation decreases but the economy remains strong – and a recession is small. The Federal Reserve is carefully considering its next crucial maneuvers as it tries to land the plane. It now indicates interest could come this year, but not until spring or summer.

There is still a better than 50% chance that the Fed will cut rates sooner than the market expects, or even raise rates again, Torsten Slok, chief economist at Apollo Global Management, said in a note to investors on Monday.

There are two signs of civil unrestst economists and investors.

Economists are concerned: More than 20% of respondents said the Federal Reserve’s monetary policy is “too restrictive,” according to a new National Association for Business Economics poll released Monday, the highest percentage since mid-2010.

That means they think the Fed is keeping rates too high and could potentially slow economic growth too much and risk a recession. The survey results came just before the central bank’s January policy meeting, where officials kept rates steady and Fed Chairman Jerome Powell indicated the bank was unlikely to cut rates at the March meeting.

On Friday, Atlanta Fed President Raphael Bostic told CNN that he doesn’t see rate cuts coming until this summer.

Investors show some doubt: The markets appear stable or less volatile than before. But some indicators show that there is underlying uncertainty and that Wall Street still fears a recession, Slok said.

Interest rate volatility (how much interest rates are expected to rise or fall) and swaption volatility (how much the cost of betting on future interest rate changes will rise or fall) are high relative to the VIX (which measures how much people expect interest rates to rise) . stock market will fluctuate in the near future).

So even though the stock market seems relatively calm, there is a lot of unrest in the world of interest rates. Investors appear to be more uncertain about the Fed’s next steps than about the stock market’s ups and downs.

And of course, recessions aren’t particularly good for the stock market either.

Shortly: This is a busy week with many Fed speakers ahead. The January consumer price index, an important measure of inflation, will also be released on Tuesday morning. If the CPI shows that price increases are higher than expected, we could see some of that uncertainty start to have an impact.

Super Bowl LVIII was the most watched television broadcast in a generation, reports my colleague Olivier Darcy.

Sunday’s overtime thriller, which pitted the Kansas City Chiefs against the San Francisco 49ers, averaged 123.4 million viewers, CBS said Monday, breaking Super Bowl viewership records.

The highly anticipated showdown in Las Vegas surpassed the previous most-watched Super Bowl in history, a record set last year when the Chiefs staged a second-half comeback to beat the Philadelphia Eagles in front of 115 million viewers. The crowd for Super Bowl LVIII was so big it was getting closer the most watched television broadcast of all time set in 1969, when an estimated 125 to 150 million viewers watched the Apollo 11 moon landing.

The record-breaking Super Bowl capped off a strong season for the NFL, which had already surpassed viewership records in the weeks leading up to the epic conclusion at Allegiant Stadium, with the NFC Championship Game on Fox averaging 56 million viewers and the AFC Championship Game average 55 million on CBS.

That makes the NFL and the Super Bowl all the more valuable to advertisers trying to reach a mass market. Companies handed out approximately $7 million to secure a 30-second spot during the big game.

Cocoa prices are rising so high that even the largest chocolate producers are struggling to stay profitable, reports CNN’s John Towfighi. That doesn’t bode well for your wallet this Valentine’s Day.

Last On Thursday, Hershey Co. said. that it would cut 5% of its workforce after historic cocoa prices and inflation-weary consumers hit fourth-quarter earnings.

Climate problems in West Africa – where more than 60% of global cocoa production takes place – are damaging crop yields, limiting cocoa supply and causing prices to rise.

Cocoa futures have skyrocketed, doubling over the past year and up 40% since January; sugar, labor and other factors have also become more expensive. That means higher prices for consumers, who will spend more to fill up on chocolate treats.

“Cocoa is expected to limit earnings growth this year,” Hershey CEO Michele Buck said on a call with analysts Thursday. Hershey’s product prices rose 6.5% in the fourth quarter; prices for their confectionery chocolate and other candy products in North America rose 9% in 2023.

Other companies are also feeling the pressure. Li-Lac Chocolates, which calls itself the oldest chocolate shop in Manhattan, told CNN that its raw chocolate prices increased 13% in February compared to a year ago.

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