Daily Brief - Waller's wisdom

TLDR: In the waltz of financial markets, the tempo is set by interest rates, and all eyes are on the Fed for the cue to the next step. But when can the market expect the first rate cut? Fed Governor Christopher Waller's recent comments provide some rhythm to this dance.

Waller, speaking at the Brookings Institution, suggested that the Fed is closer than ever to achieving its 2% inflation target. However, Waller cautions that any move towards reducing rates must be "methodical and carefully" executed.

Waller hinted that "sometime this year" would be reasonable to start considering rate reductions, specifically three cuts (versus market expectations of five to six). Though not distinctly aggressive, his comments were also not significantly lenient, leading to a reassessment of interest rate bets.

The likelihood of a rate cut by March, as indicated by Federal Reserve swaps, decreased to 65% from nearly 80% last Friday. In response, stocks declined as treasury yields and the dollar increased.

Wells Fargo Investment Institute similarly projects a restrained approach by the Fed, anticipating three cuts throughout 2024, which would adjust the Federal funds rate to between 4.50% and 4.75%.

However, these forecasts are not set in stone. In the ongoing battle against inflation, it's crucial to recognize that data carries more weight than words.

Therefore, it's important to keep an eye out for the PCE print, scheduled for release next Friday but also today's US retail sales data, which could hint at how the fight against inflation goes.

Market Movers: XXTEXTXX

Here are the best and worst performing stocks on a 6-month, median basis post historical rate cuts:

Top 3 Performing Stocks: Netflix (Ticker: NFLX) with a return of 36.16% Nvidia (Ticker: NVDA) with a return of 30.20% Ross Stores (Ticker: ROST) with a return of 29.92%

Bottom 3 Performing Stocks: United Airlines (Ticker: UAL) with a return of -45.32% Las Vegas Sands (Ticker: LVS) with a return of -37.83% Delta (Ticker: DAL) with a return of -34.82%

Earnings Update: Alcoa reports tonight

Alcoa Corporation is a leading producer of bauxite, alumina, and aluminum products.

On one hand, there are concerns regarding factors such as lower aluminum prices, the impact of CO2 compensation changes in Norway, and a stronger U.S. dollar potentially affecting Alcoa's overseas business.

On the other, there are positive indicators such as benefits in the Alumina segment from higher shipments, driven by increased trading activity and shipments across refineries.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.

Asset Spotlight: Barclays 📉 Goldman Sachs 📈

Toggle analyzed 18 similar occasions in the past where Barclays price was at a low and historically has been followed by median upside in Goldman Sachs' stock price over the following 6 months.

Goldman reported strong Q4 results, largely driven by their asset and wealth management divisions but revenue fell short from investment banking and trading, which are typically the bank’s strongest divisions.