In testimony to Congress last week, Federal Reserve Chair Jerome Powell told lawmakers the central bank was “not far” from being able to cut interest rates.

Powell said inflation has “eased notably” over the past year, without major spikes in unemployment. He concluded that rate cuts “can and will begin” this year.

I happen to own a Fed-speak decoder ring, but in this case, it isn’t needed. For once, Powell wasn’t opaque. It’s clear that rate cuts are on the way.

The testimony is Powell’s last scheduled public appearance before the next meeting of the Federal Open Market Committee (FOMC) meeting on March 19-20. The consensus on Wall Street is that the Fed will stand pat until it initiates the first cut at its June 11-12 meeting.

The U.S. labor market is showing signs of moderation, which is what the Fed wants to see.

The U.S. nonfarm-jobs report for February presented a mixed picture of the labor market. While the headline figure exceeded expectations with 275,000 jobs added, a closer look revealed underlying softness.

Notably, last month’s figures were revised downward significantly, and the unemployment rate climbed to 3.9%. Moreover, average hourly earnings moderated from 4.5% to 4.3% year-over-year. Despite these signals of a cooling labor market, investors welcomed the lower wage growth, aligning with the Fed’s focus on alleviating inflationary pressures.

Comprehensive surveys of supply-management professionals, such as the ISM Manufacturing and Services Employment indexes, offer further insights into the labor market’s trajectory. Both indices fell into contractionary territory in February, indicating a slowdown in employment.

While the manufacturing sector experienced a prolonged contraction in employment, the services sector showed relative strength, although some industries reported a decrease in employment. These trends suggest a broader slowdown in the labor market, with potential implications for future hiring plans.

The Job Openings and Labor Turnover Summary (JOLTS) data for January continued to depict a cooling labor market. Job openings moderated, signaling a decline in employment demand, while the quits rate reached a near-term low. These indicators suggest a gradual rebalancing of labor supply and demand, which could lead to easing wage growth and a modest uptick in the unemployment rate over time.

Stocks pulled back last week, but after their long winning streak, a pause was to be expected:

The latest labor market data further bolster expectations of rate cuts, with lower wage growth and softer labor-market indicators supporting the case for easing inflation.

As markets brace for rate cuts and navigate labor-market dynamics, maintaining a diversified portfolio and adapting to evolving economic conditions remains prudent. As I’ve previously written, you should embark on sector rotation that increases exposure to small- mid-cap stocks and sectors (e.g., industrials and real estate) that benefit from economic growth and falling rates.

An investing trend that’s getting short shrift by analysts is infrastructure. Massive funds are being allocated by governments around the world on ambitious infrastructure projects; construction-related stocks are a good bet now. That’s especially true as the housing sector picks up amid falling mortgage rates.

The week ahead…

Here are the salient economic reports to watch in the coming days:

NFIB optimism index, consumer price index (Tuesday); retail sales, producer price index, initial jobless claims (Thursday); consumer sentiment (Friday).

We face a big week of inflation data. Buckle up. Inflation has been on a downward path, but we’ll get bumps along the way. Occasional ticks higher typically have spooked the markets.

As all eyes turn to forthcoming inflation readings, the main U.S. stock market indices closed mostly lower Monday as follows:

• DJIA: +0.12%
• S&P 500: -0.11%
• NASDAQ: -0.41%
• Russell 2000: -0.81%

The benchmark 10-year U.S. Treasury yield (TNX) rose 0.37% to close at 4.10%. Mega-cap technology shares lagged the broader indexes, including the chipmaking giant Nvidia (NSDQ: NVDA), which fell more than 1% on Monday, after falling more than 5% on Friday. The tech sector appears to be consolidating.

Read This Story: Crypto Bulls Unleashed: SEC Approval of Bitcoin ETFs Sparks Frenzy

Editor’s Note: I expect the cryptocurrency market to continue its winning ways in 2024, as the bull market in Bitcoin (BTC) and other crypto assets forges ahead.

The gap between traditional and digital markets is narrowing, as Bitcoin exchange-traded funds (ETFs) report massive inflows of new capital.

It’s clear that every portfolio should have exposure to crypto. However, you need to be informed, to make the right choices. Pick the right crypto asset and you can reap huge gains in a short amount of time. Pick the wrong one, and you can lose your shirt.

The good news is, in our coverage of the crypto market, we separate fact from myth, the wheat from the chaff. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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