Wall Street remains under pressure as Treasury yields climb higher, following Federal Reserve Chair Jerome Powell’s resolute stance against market speculation of impending rate cuts. In a recent interview, Powell emphasized the necessity for additional evidence indicating a sustainable decline in inflation before considering lowering interest rates, highlighting that the economy’s robustness has effectively mitigated recession risks.
In January, job growth in the U.S. picked up pace, and wages saw their most significant increase in nearly two years. These are indications of enduring strength in the labor market, potentially complicating the Federal Reserve’s plans to begin cutting interest rates in May. Richard Flynn, managing director at Charles Schwab UK, said:
“The strong jobs report indicates that demand in the labor market is higher than expected. While lower interest rates would surely be welcomed, it is becoming increasingly clear that markets and the economy are coping well with the high rate environment, so policymakers are perhaps feeling that the need for monetary policy to ease is less urgent.”
See Related: Optimism Among Individual Investors About The Short-Term Outlook Of The U.S. Stock Market Rose To Its Highest Level
AAII Sentiment Survey
Positive information is that the latest American Association of Individual Investors (AAII) Sentiment Survey showed that optimism among individual investors about the short-term outlook for stocks surged again. American Association of Individual Investors (AAII) reported that bullish sentiment, or expectations that stock prices will rise over the next six months, jumped 9.8 percentage points to 49.1%.
Bullish sentiment has reached an “unusually high level,” surpassing its historical average of 37.5% for the 13th consecutive week. The last time optimism was higher was on December 21, 2023, at 52.9%. On the other side, bearish sentiment, or expectations that stock prices will fall over the next six months, decreased by 1.6 percentage points to 24.5%. This sentiment remains below its historical average of 31.0% for the 13th consecutive week.
Simultaneously, approximately 80% of earnings reports are surpassing analysts’ expectations. With results available from nearly half of the S&P 500 companies, including major tech-related firms, overall earnings are projected to have risen by 7.8% in the fourth quarter compared to the same period last year.
In their latest report on equity client flows, BofA Securities equity and quant strategist Jill Carey Hall said that the previous week saw the largest influx of U.S. equity investments in seven weeks, along with the most substantial private client inflows in over a year. Jill Carey Hall added:
“Private clients were the biggest buyers of equities last week, led by purchases of ETFs and Tech stocks. Institutional clients were also net buyers after large outflows the week prior, while hedge fund clients were net sellers.”
Investors are actively monitoring earnings and forecasts from big companies against the backdrop of high borrowing costs but remarks from the Fed’s policymakers through the week, including voting member Cleveland’s Loretta Mester, will also be on investors’ watch list.
