There's never a dull moment in our business these days. Events impacting the financial markets are happening so fast that we probably need to stop every now and then to update you on our latest forecasts.
We are still targeting the S&P 500 at 7,700 by the end of this year and 10,000 by the end of the decade. The 10-year Treasury bond yield should range between 4.25% and 4.75% this year. We are still targeting a gold price of $6,000 per ounce by the end of this year and $10,000 by the end of the decade (chart).
We don't expect any rate cut by the Fed through the June FOMC meeting, which will be the first one with Kevin Warsh as Fed chair if his appointment is confirmed by the Senate. We think that inflation will moderate to the Fed’s target of 2.0% y/y by the end of this year, but it could remain sticky around 3.0% through the summer. The economy should be booming this year thanks to the very stimulative fiscal and monetary policies. If so, then there may be no Fed rate cut at all this year. (See today's Financial Times for my op-ed "Markets are set to test Warsh.")
Let's review the latest booming economic data and then do the same for the booming earnings data:
(1) The Citigroup Economic Surprise Index (CESI) has jumped well above zero in recent days to 53.5 (chart). The Fed eased late last year because the labor market looked weak. But recent unemployment insurance claims data suggest that the employment situation might be improving. (Friday's employment report has been delayed because of the federal government shutdown.)
The CESI suggests that the 10-year Treasury bond yield is likely to move higher in the coming days.
(2) The regional business surveys conducted by five of the 12 Fed district banks suggested that January's ISM M-PMI would improve, which it did, though more than expected (chart). At 52.6, it is the highest since the summer of 2022.
(3) In the ISM M-PMI survey, both new orders and production were very strong at 57.1 and 55.9 (chart).
(4) Purchasing and supply management professionals in the Chicago area, primarily members of ISM Chicago, are polled monthly to assess business conditions for their respective companies. The Chicago Business Barometer rebounded strongly during January (chart).
(5) The four-week average of initial unemployment claims has been falling in recent weeks. Its current reading of 206,300 is among the lowest on record, suggesting that the unemployment rate should remain low (chart).
(6) The forward earnings of the S&P 500 rose to another record high at the end of January (chart). The same can be said for the forward earnings of the S&P 400. In the coming weeks, the forward earnings of the S&P 600 should rise to record levels as the overall economy continues to boom.
(7) Last but not least, the y/y growth rates in the percent of S&P 500 companies with positive 12-month percent changes in forward earnings and revenues are rising, with the former leading the latter higher (chart). (Hat tip to our colleague Joe Abbott for the beautiful chart!)
We view this as a very bullish indicator for the economy and for a broadening of the stock market rally.
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