In recent months, investors have become increasingly aware that the US Federal Reserve will not be pushing for any further records on the stock market in the near future. This has led them to seek hope from other sources instead of relying solely on the Federal Reserve.
Despite high inflation rates in the US, which have surpassed the target value of 2 percent, stock market traders had been holding onto the expectation that interest rates would be cut significantly in 2024. However, after March’s unexpectedly high inflation and Federal Reserve Chairman Jerome Powell’s clear rejection of any future interest rate cuts, it became clear that interest rates would remain high for a longer period.
As a result of this news, interest rates on US government bonds have risen, causing the US to pay more for its debt service and posing risks to the American housing market. High mortgage interest rates, exceeding 7 percent for thirty-year loans, are deterring potential buyers and threatening a freeze in the housing market.
However, despite these challenges, disappointment in stock markets has been limited and price corrections have been moderate. The S&P 500, the leading American stock market index, has still seen a growth of over 5 percent since the beginning of the year. Investors are reacting less vehemently compared to when expected interest rate cuts do not materialize due to stronger-than-expected performance of the American economy.
Björn Eberhardt, Head of Investment Office at Luzerner Kantonalbank highlights some positive results achieved by American companies towards the end of 2023 and in Q1 2024. The excitement around artificial intelligence also helped boost the stock market even as bond yields rose. Despite concerns about potential slowdown in consumer spending which has been crucial driver of US economy but may be unsustainable in long term
