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Economic Headwinds and Fed Policy Uncertainty: Market Wary as Inflation Concerns Persist, Bitcoin Soars

Stocks await PCE

Stocks are lower this morning.  The market is awaiting the PCE on Thursday, but the GDP was revised lower this morning.  The economy is indeed moderating, but inflation is still a concern.  Consumer confidence took a dip, registering the first decline since November.  The drop in consumer confidence was expected as higher rates started to have an impact on consumers as well as the persistent inflation. 

The stocks market was expecting about six cuts this year, but markets are now expecting three interest rate cuts. The release of the CPI and PPI suggest that inflation is still not under control and the repeated theme of higher for longer is becoming more apparent.   The economy is still growing but inflation is moderating at a slower pace after a decline from last year.  The last 1-1.5% decline will be significantly more difficult to remove from the economy.  The Fed will be looking for more economic weakness before lowering rates.

Bitcoin continued its surge on Wednesday, shooting above $60,000 for the first time since November 2021. Bitcoin has soared more than 18% this week alone.  With new demand from ETF’s and events related to the limiting of supply in bitcoin mining, demand is growing faster than supply. 

eBay rose nearly 5% after announcing that it was raising its dividend and an additional $2 billion on buybacks. Urban Outfitters lost more than 9% after reporting weaker-than-expected results for the fourth quarter.  TJX (T.J. Maxx) Cos. was flat on Wednesday with sales jumping 13% but the company issued lowered guidance.

Investors should remain cautious at this point.  The good news is already priced into the market.  The stock market has had a great run, but it would be wise to have discipline and patience before getting overly optimistic.

Key Points.

  • Lower GDP growth revision and declining consumer confidence
  • Concerns about persistent inflation and reduced expectations of Federal Reserve rate cuts
  • Bitcoin is surging due to increased demand outpacing supply.
  • Earnings announcements from eBay, Urban Outfitters and TJX are reacting differently to earnings, guidance, and other news. 

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