Stocks closed higher yesterday, extending sharp gains from Friday.

Last week's better-than-expected inflation numbers from both the Consumer Price Index (CPI, retail inflation), and the Producer Price Index (PPI, wholesale inflation), not to mention the previous week's Personal Consumption Expenditures (PCE) index (the Fed's preferred inflation gauge), helped fuel the recent turnaround.

While that's unlikely to cause the Fed to cut interest rates when they conclude their 2-day FOMC meeting on Wednesday, 3/19 (odds for a rate cut are at just 1.00%), it does show that progress on inflation appears to have resumed. And that's good for the economy and the market.

It's worth noting that the odds don't turn favorably for a rate cut until the June 18 meeting, which currently has a 67.1% likelihood of a rate cut. The meetings before that (the aforementioned 3/19 meeting and subsequent 5/7 meeting) both favor no cuts by a large margin.

One of the biggest factors prompting the Fed to pause their rate-cutting cycle (after cutting rates by 100 basis points last year, all within 4 short months) is uncertainty surrounding the administration's tariffs and economic policy.

We'll see if the Fed can shed a little more light on their thought process and what members are thinking now. In addition to the FOMC Announcement on Wednesday, we'll also get the customary Fed Chair Press Conference that follows.

In other news, the Organization for Economic Co-operation and Development (OECD), updated their estimates on global growth for 2025 by lowering it to 3.1% vs. last year's 3.2%. For context, OECD's 2025 global growth estimate was 3.3% back in December. So the recent downward revision only shaves off two-tenths of one percent.

As for U.S. growth, they cited U.S. tariffs on imported goods as weighing on their forecast, putting 2025 estimates at 2.2%, down two-tenths of one percent from their previous estimate of 2.4%.

The recent update is interesting. Even though the U.S. outlook was lowered (by 0.2%), it still shows solid growth. I point this out because of the recent GDPNow estimate which slashed U.S. Q1'25 GDP from +2.3% to -2.4% all within about a week's time, and sent the market reeling.

Yesterday, GDPNow updated their Q1 estimate to -2.1%. The next estimate comes out today, 3/18. Then we have to wait until 3/26 until they provide another one. If GDPNow's Q1 estimate is right, then the U.S. will have to see sharply higher growth in the next 3 quarters to match OECD's 2.2% estimate.

Wednesday's FOMC Announcement comes with a new Summary of Economic Projections (SEP), so we should get a more official outlook on the U.S. economy tomorrow.

Either way, the earnings picture looks excellent. Q4'24 S&P earnings are on pace to show a 15.0% increase, with Q1'25 forecast at 6.1%, Q2 up 10.5%, Q3 up 9.9%, and Q4 up 10.9%.

So while recession fears have suddenly become a concern, none of that is showing up in the aggregate earnings estimates, or the OECD's growth estimates.

After 4 tough weeks, the markets will see if they can build on the gains made over the last 2 days.

See you tomorrow,