How the Federal Reserve proceeds with interest rates will be the question commanding investor attention this month ahead of the March policy meeting. Next week, the first full trading week of March, macroeconomic concerns will take center stage for investors. Fed Chair Jerome Powell is set to give his semiannual monetary policy update to the House of Representatives on Wednesday, and the Senate on Thursday, testimonies that will be dissected by traders for any insight into when lower rates are coming. Rate cut expectations have already come down from where they were as the year began. Now they’re expected to start later in the year and Wall Street forecasts fewer of them. At the January Fed policy meeting, Powell shot down the probability that rates would come down in March, insisting that the Fed will proceed carefully as it deliberates when to take its foot off the brake. Currently, markets are pricing in the likelihood of a quarter percentage point cut first coming in June, instead of March or May, as implied by trading in 30-day interest rate futures, according to the CME FedWatch Tool . Next week, the Fed chief is largely anticipated to stick to the same talking points in testifying before Congress. But his comments will take on added significance after last month’s hotter consumer and producer price reports reminded investors that the last mile to the Fed’s 2% inflation target won’t be smooth. Powell will likely try to address, and assuage, those concerns. “The emphasis has really shifted back to inflation,” said Shannon Saccocia, chief investment officer at NB Private Wealth. Any remarks made by Powell that are variance with what he has previously said have the potential to be a market moving event. On the calendar, the Capitol Hill appearances come ahead of the February jobs report next Friday, and are also the last scheduled appearances by the Fed chair before the next Fed meeting on March 19-20. .IXIC 5Y mountain Nasdaq Composite Still, outside of any major surprises, stocks are generally expected to drift higher next week, even as concerns swirl around how long equities can sustain their upward momentum. All three major benchmarks have notched fresh all-time highs this year, with the Nasdaq Composite just this week recording its first record high since late 2021. On Friday, the S & P 500 and tech-heavy Nasdaq were both headed for winning weeks. The Dow Jones Industrial Average was set to close out the week with losses. Softening labor expectations Many investors are hopeful that an expected softening in the labor market will signal to policy makers that they can cut rates sooner rather than later. In fact, the February jobs report, due out next Friday, is expected to show a moderation in payroll gains. The U.S. economy is anticipated to have added 225,000 jobs in February, down from a rise of 353,000 the prior month, according to FactSet consensus estimates. The unemployment rate is expected to have held steady at 3.7%. Hourly earnings are anticipated to have grown by 0.25% last month, down from a 0.6% jump in the prior month, according to economists polled by FactSet. A report that meets those expectations has the potential to add to the bull case for a soft landing for the economy. This week, Barclays raised its S & P 500 year-end price target to 5,300 from 4,800, citing the economy’s “remarkable ability to maintain robust employment amid restrictive [monetary] policy.” “It looks like if we get softening job numbers in certain categories, that may be good enough for a cut,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “Because I think it just feels like the Fed is looking for a reason to come down a bit.” There have been other recent signs of cooling in the labor market. While companies are still retaining workers, data from the Labor Department this week showed that initial jobless claims ticked up from the prior week, as did continuing claims for unemployment benefits. The market to the bulls Wall Street will weigh the interest rate outlook at a moment when the bulls have taken charge of the market, with a risk-on enthusiasm starting to draw parallels to 2021. For example, in February, the Dow Jones Industrial Average closed out its first four-month advance since May of 2021. Nor are the stock benchmarks alone. This week, Bitcoin surpassed $62,000 to close out its best month since 2020 . Online brokerage Webull said it’s planning to go public through a special purpose acquisition company (SPAC). And, more Wall Street strategists are raising their year-end S & P 500 forecasts for the year, echoing the Barclays move. “The animal spirits are reviving,” Michael Hartnett, chief investment strategist at BofA Global Research, told CNBC’s Yun Li. But the market is also flashing some danger signals to other investors. While market breadth has been improving, these observers worry that the rally is still too dominated by the Magnificent Seven stocks. Even there, the mega-cap tech stocks have shown sharper signs of divergence: Nvidia , for example, has surged 65% this year, but Apple is down by more than 7%. NVDA YTD mountain Nvidia In fact, Melissa Brown, head of applied research at SimCorp, said she worries that lower market volatility could be a bigger concern in the coming months than weaker market breadth, as it “incentivizes investors to take bigger risks.” In other words, there’s a lot more potential downside when investors grow complacent about their possible losses. “[I]f things do turn around, … if the economy does start to falter, they may find themselves in a position that they don’t want to be,” Brown said. The CBOE Volatility Index , commonly referred to as the fear gauge, was last floating around 13, suggestive of a sanguine attitude by investors as to the outlook for a market disruption anytime soon. .VIX YTD mountain CBOE Volatility Index Meanwhile, NB Private Wealth’s Saccocia agreed that earnings growth will need to broaden out from just a handful of stocks, and encouraged investors to start diversifying their holdings. She suspects there are buying opportunities in healthcare, as well as in REITs and utilities. She has an overweight position in small-caps, and also recommends adding exposure to Japan. Eventually, Saccocia anticipates that earnings growth will be the main driver for equities, as opposed to the “noise” of Fed rate cuts, and expects investors will find opportunities in the companies best equipped to navigate macro challenges. “We think that that additional dispersion creates opportunities for investors who are active in selecting outside of just allocating to an index,” she said. On the economic front, next week will also bring a smattering of earnings from major retailers. Target is set to report results on Tuesday, as is Ross Stores . Costco Wholesale and grocery chain Kroger are expected to release results on Thursday. Semiconductor company Broadcom is reporting results on Thursday. Week ahead calendar All times ET. Monday March 4, 2024 No notable events. Tuesday March 5, 2024 9:45 a.m. PMI Composite final (February) 9:45 a.m. S & P PMI Services final (February) 10 a.m. Durable Orders final (January) 10 a.m. Factory Orders (January) 10 a.m. ISM Services PMI (February) Earnings: Ross Stores , Target Wednesday March 6, 2024 8:15 a.m. ADP Employment Survey (February) 10 a.m. JOLTS Job Openings (January) 10 a.m. Wholesale Inventories final (January) 10 a.m. FED Beige Book Earnings: Campbell Soup Thursday March 7, 2024 8:30 a.m. Continuing Jobless Claims (02/24) 8:30 a.m. Initial Claims (03/02) 8:30 a.m. Unit Labor Costs final (Q4) 8:30 a.m. Productivity SAAR final (Q4) 8:30 a.m. Trade Balance (January) 3 p.m. Consumer Credit (January) Earnings: Broadcom , Costco Wholesale , Kroger Friday March 8, 2024 8:30 a.m. Hourly Earnings preliminary (February) 8:30 a.m. Average Workweek preliminary (February) 8:30 a.m. Manufacturing Payrolls (February) 8:30 a.m. Nonfarm Payrolls (February) 8:30 a.m. Private Nonfarm Payrolls (February) 8:30 a.m. Unemployment Rate (February) — CNBC’s Michael Bloom, Jeff Cox and Yun Li contributed to this report.
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