The S&P 500 broke the 5,000 level recently for the first
time in history as investors embraced euphoria and rallied.1

And then tumbled as investors got jittery.2 Then
yo-yo’d a bit more.

Fear and greed are the two halves of the investor
psychology coin.

When investors are feeling greedy and exuberant, they buy in
the hopes of making a big profit, driving markets up.

When sentiment turns, and they start feeling fearful, they
sell in the hopes of avoiding losses, driving markets down.

The rollercoaster of investor psychology can take over and
push markets in directions that don’t always jibe with the underlying financial
and economic fundamentals.

We’re seeing that push-pull in action right now as investors
weigh the likelihood of future interest rate cuts and price out different

What positive factors support the rally?

1. Employment is strong, and the most recent report stunned
economists with over 350,000 jobs added in January. Though some of the surprise
increase can be attributed to seasonal effects, the overall trend is
encouraging. 3

2. The U.S. economy may be re-accelerating. The running
“unofficial” forecasts by the Atlanta Fed show Q1 economic growth coming in
above 3%, trending higher than earlier estimates.4

3. The Fed has forecasted multiple rate cuts in 2024, which
would make credit cheaper to access and support business growth.5

What negative factors could trigger a pullback?

1. Pullbacks are normal and expected after markets
experience a sustained rally.

2. Inflation is generally trending lower, but the latest
data shows prices rose more than expected in January.6 If inflation
remains stubborn, it could raise the specter of a “hard landing” recession and
spook markets.

3. Investors are counting on interest rates coming down
soon. If the Fed indicates it will delay cuts, investors could rethink their

Bottom line: Volatility is high, and we’ll likely see
markets continue to rally and retreat as investors consider their next moves
and price in new data.








Chart source:

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