After overcoming bears, markets bid stocks to 2023 highs ahead of the Fed meeting this week. The central bank will meet on Tuesday and announce its policy decision on Wednesday at 2:00 p.m. Though the market expects no interest rate changes, it already expects one or more rate cuts in 2024.
How many?
No rate cuts are a certainty in 2024. Fed Chair Jerome Powell implied a warning to markets not to “fight the Fed.” Each rate decision occurs from meeting to meeting. However, regional banks, financial institutions, and bond markets are all pricing in at least two rate cuts in 2024, starting mid-year.
Regional banks, which almost suffered a liquidity crisis in March due to their heavy exposure to long-term illiquid, government debt, recovered their losses. PNC Financial (PNC) is up 16.97% in the month. Keycorp (KEY) gained 17.55%, Truist Financial (TFC) is up 12.93%, and the regional bank ETF (KBE) is up 15.99% in the last month.
Bullishness has risen quickly since late October. Citi (C) is up ~ 17% but still trades at a 7.76% price-to-earnings ratio. Expect C stock to trade to a new 52-week high, taking Bank of America (BAC) and Wells Fargo (WFC) with it.
Long-term investors do not expect rate cuts for the next year. The new norm is no longer zero interest rates. It is giving 5% in interest income to savers to slow inflation rates before they get out of control.