New High

Global equity rallies continue to show strength, with major indexes reaching unprecedented highs. The overall economic situation remains encouraging, marked by a downward trend in inflation and a normalization in the job market. This has led to speculation in the market that the Federal Reserve might consider reducing rates from their 23-year high in the upcoming spring meeting. During the January FOMC meeting, the Fed unanimously decided for the fourth consecutive time to maintain the benchmark Federal Funds Rate (FFR) at 5.5%. While acknowledging a favourable economic environment, the Fed emphasized the need for further evidence of sustained inflation decline. Despite this cautious stance, the committee judges the risks to achieving its employment and inflation goals are moving into better balance. This indicates the Fed’s statement striking a delicate equilibrium by shedding the hiking bias while affirming a reluctance to ease imminently. Consequently, a FFR cut is unlikely in the March meeting, with a more probable occurrence in the middle of the year.

The upswing in US equity indexes is propelled by seven prominent stocks, most of which are associated with Artificial Intelligence. The soaring expectations for the AI sector have fueled the impressive performance of these stocks thus far. Looking ahead, investors are keen to assess fundamental results to determine if these high expectations can translate into substantial company earnings. Investors are now shifting their focus beyond these large-cap stocks. Historically, smaller stocks have exhibited better performance. If the current economic scenario maintains a soft landing, avoiding a shallow or hard landing, the rally could potentially extend its momentum, particularly through smaller market capitalization stocks.