Fed members just hat-tipped what’s next for interest rates

“Don’t Fight the Fed” is a fundamental financial-market shibboleth that most investors absorb with their baby food.

The dictum makes sense: The Federal Reserve acts not only as the U.S. central bank but also as the effective interest-rate-setting body for the rest of the world, given the domestic economy’s exceptionalism and the dollar’s power and ubiquity in global commerce.

And financial-market arithmetic is fairly easy, at the base level, to understand: higher interest rates = lower asset prices.

So why are stocks continuing to set records, at home and abroad, when Fed officials are out in force telling anyone willing to listen that they’re not in a hurry to cut rates this spring and may even decide to wait deep into the summer to reverse some of the most aggressive policy tightening in a generation?

It’s a question that’s haunted markets this year and largely undermined the narrative surrounding the S&P 500’s march past the 5,000-point level this week. That move cemented the benchmark’s bull run from last October’s lows and now values blue-chip corporate America at nearly $42 trillion.

First, many investors are concerned by the narrow breadth of this year’s rally, which LPL Financial’s chief technical strategist, Adam Turnquist, notes has been powered by just a few stocks.

“Amazon, Meta, Microsoft, and Nvidia have done most of the heavy lifting,” contributing nearly 75% of the S&P 500’s total return this year, he said. “That’s more than double the contributions from the top four stocks during this time last year.”