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Kevin Matras   
Profit from the Pros
By Kevin Matras
Executive Vice President
Zacks Investment Research

Stocks Closed Higher Yesterday, On Pace To Close Higher For The Week

Stocks closed higher yesterday after a volatile session. But by the end of the day, the Dow, the S&P, and the Nasdaq were all higher. And the Nasdaq led the way with a gain of 1.01%.

Wednesday's FOMC announcement and Mr. Powell's press conference had something in there for both bulls and bears. On Wednesday, the bears won out. Yesterday, it was the bulls.

With one more day left in the week, the big 3 indexes are all higher for the week. And it won't take much to keep it that way.

To recap Wednesday's Fed news, they raised rates by a quarter point, which puts the Fed Funds midpoint at 4.88% (range of 4.75%-5.00%). And they essentially hinted at one more 25 bps hike come their next meeting on May 2-3.

They will also continue their efforts to reduce their balance sheet. Their holdings increased last week as they injected liquidity into the banking system. But they see that as a temporary measure, and will resume their passive reduction by letting their holdings expire without replacing them.

And they appeared to back away from Mr. Powell's congressional testimony from earlier this month when he said the Fed might have to raise rates "higher than previously expected." Instead, he reiterated his expectation from December's FOMC meeting when he estimated rates would get as high as 5.1% by the end of 2023. And one more 25 bps hike would put the midpoint at roughly 5.1% (5.13% for a range of 5.00%-5.25%).

While he estimated the Fed Funds rate to drop to 4.1% by the end of 2024, and 3.1% by the end of 2025 (which means rate cuts beginning in 2024), he effectively said there would be no rate cuts this year. In fact, the exact quote was, "rate cuts this year are not our baseline expectation." (He's been pretty clear on that for a while now. But some still think they will cut sooner rather than later.)

In other news, yesterday's Weekly Jobless Claims came in better than expected, falling by -1,000 to 191K.

New Home Sales rose to 640,000 units (annualized) vs. last month?s 633K, but missed the consensus for 645K.

And the Chicago Fed National Activity Index slipped to -0.19 vs. last month's 0.23 and views for 0.18.

Today we'll get the Durable Goods Orders report, and the PMI Composite Flash report.

We'll also hear from James Bullard, President of the Federal Reserve Bank of St. Louis this morning, as he speaks, and participates in a discussion, on the U.S. economy and monetary policy, before Greater St. Louis, Inc.

The market is still trying to make heads or tails of Wednesday's rate hike, and suggestion of another one after that.

But if inflation continues to decline, and the economy remains resilient (strong jobs, strong retail sales, and a strong GDP -- Q1 is forecast at 3.2%), that all sounds bullish to me given the Fed?s anticipated rate pause after their May 3 meeting.

Let's get thru the week first. But so far, it's looking good.


Kevin Matras

Executive Vice President, Zacks Investment Research


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