The main focus of markets was on the week’s interest rate announcements from the heavyweight central banks in London, Tokyo and, of course, a highly consequential one in Washington DC on Wednesday afternoon, which finally resolved the passionate, frenzied “Will be it be 25 or 50?” debate of the last few weeks.
More data over the weekend confirming the accelerating deterioration of the Chinese economy which wasn’t helped by the biggest typhoon since 1949 smashing into Shanghai on a holiday weekend and another apparent attempt on Trump’s life provided a slightly jittery backdrop when U.S. markets opened on Monday morning.
Not much happened in Monday’s session with stocks mostly playing a waiting game. The S&P 500 ended fractionally higher for a sixth straight trading day of gains and Small Caps moved handily upwards. Tech/AI stocks, however, reversed course a bit after the previous week’s spectacular fiesta.
The futures market-driven odds of a jumbo half point interest rate cut over a quarter point one on Wednesday afternoon continued to climb rapidly throughout the day and actually moved into the ascendancy with a 67% probability by the close, having been as low as 15% just a week earlier.
This renewed optimistic buzz about a possible half-point cut the following day bolstered stock prices on Tuesday morning, Fed Eve. Also helpful was the pre-market release of Retail Sales and Industrial Production data which both came in better than expected. Later in the session, however, doubts crept in on fears that “only” a quarter point cut might actually trigger market disappointment and drag prices lower as a result. Stocks retreated to close essentially unchanged on the day.
Fed Day finally arrived on Wednesday along with developing fears of a further escalation in the Middle East resulting from two days of deadly electronic device attacks in Lebanon. Traders managed to sit on their hands in advance of the 2pm ET rate announcement and the 2:30pm ET Fed chair Jerome Powell’s press conference.
In the end, the Fed went with the big cut of 0.50%, lowering the Fed Funds rate to 4.875% and released its projections for the months and years ahead. There was a note of dissent from committee member and Fed Governor Michelle Bowman who voted for only a quarter point cut (see OTHER NEWS below).
The Fed committee’s median estimate for where interest rates will be at the end of 2024 after two more meetings was 4.375% and then down to 3.375% by the end of 2025. That’s two more quarter point cuts before year-end and then another four more next year. The median projections for the unemployment rate were for an imminent slight increase to 4.4% and then staying unchanged in 2025.
There was an inevitable bounce in markets immediately following the announcement. Powell went out of his way in the press conference to emphasize that “nobody should assume that this is the new pace” for rate reductions going forward.
Fears resurfaced that the decision to make the bigger cut could indicate that the Fed was just scrambling to recover lost ground having waited too long and may have lost control of the economy. Despite Wall Street having apparently got exactly what it wanted, stocks still finished the session in the red and mortgage interest rates (that are tied most closely to the 10 year Treasury rate, not the Fed Funds rate) actually shifted higher on the day.
As expected, the Bank of England (BOE) left local interest rates unchanged, but promised “gradual cuts” going forward. In something of a delayed reaction, “upon further review” of the Fed’s jumbo cut the day before, U.S. stock markets sent prices sky-rocketing out of the gate on Thursday morning with Tech/AI names in charge of ripping higher. The cheery mood continued all day and we closed at another new all-time record high for the S&P 500, the 39th such milestone this year.
The euphoria faded somewhat on Friday. A dreadful earnings report and dismal outlook from economic bellwether Fedex causing the company’s stock price to plunge and ever-growing Middle East tensions didn’t help. The Bank of Japan ended up leaving interest rates unchanged.
Stocks in general gave back a small part of Thursday’s big gains in an ultra-high volume session (brought about by index rebalancing and mass futures and option contract expirations), but the major indexes still managed to show respectable gains for the week.
OTHER NEWS ..
Not Very Fine People On Both Sides .. Crass ignorance and naked politicking was openly on display from all ends of the spectrum last week when politicians decided to weigh in on where the Fed Funds interest rate should be. Before Wednesday’s half point rate cut, Senator Elizabeth Warren led many Democrats in an absurd demand for at least a 0.75% cut.
After the 0.50% cut was announced, spurred on by Trump, many Republicans floated the preposterous notion that the Fed was acting politically to specifically benefit the Biden administration/Harris campaign, ignoring the reality that, even if that were the case (which it obviously isn’t), such measures take a lot longer than seven weeks to be felt by any voters.
The Fed ignored all this idiotic politically-driven nonsense, of course, and will continue to do as long as it is able to maintain its position as independent of presidents and lawmakers.
And all the while, these are the same politicians who are happily letting the clock tick down towards a potential shutdown of the U.S. government and who - within hours of the Fed’s rate cut announcement - voted down a stop-gap funding bill for reasons of blatant political grandstanding.
Finally Some Dissent .. At Wednesday’s Fed interest rate setting committee meeting, Michelle Bowman cast the first dissenting vote by a Federal Reserve governor since 2005, preferring to cut rates by a smaller amount.
The Fed cut rates by half a percentage point, while Bowman was in favor of quarter point cut, according a statement by the central bank. She has always remained cautious about inflation.
Dissents at the Fed have been rare, especially during Chair Jerome Powell’s tenure. The last one came from a regional bank president in June 2022, when Esther George, then chief of the Kansas City Fed, dissented in favor of raising rates by a smaller amount.
#1 .. The Capella Hotel in Bangkok topped the list of the world’s best hotels released last week, finishing ahead of last year’s winner, the Passalacqua in Lake Como which took second place this time around. The highest rated U.S.-based hotel was the Carlyle in New York City which came in at #30.
ARTICLE OF THE WEEK ..
The evidence is that simply chasing dividend-paying stocks just doesn’t work.
THIS WEEK’S UPCOMING CALENDAR ..
A pretty quiet week ahead, data-wise. The main event will be the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index for August which comes out on Friday. The consensus call is for a 2.3% increase from a year earlier.
It will, however, be a busy week of commentary and clipped quotes from Fed officials, as several of them hit the speaker circuit following the central bank's decision last week to cut interest rates by half a percent.
The small number of earnings reports coming out this week include those from Costco, AutoZone, Micron Technology, Accenture, CarMax and Vail Resorts.
LAST WEEK BY THE NUMBERS ..
Last week’s market color courtesy of finviz.com
Last week’s best performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - up 3.6% for the week.
Last week’s worst performing U.S. sector: Consumer Defensive (two biggest holdings: Proctor & Gamble, Costco) - down 1.3% for the week.
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from among the largest U.S. companies. Its price rose 1.1% last week, is up 19.6% so far this year and ended the week 0.5% below its all-time record closing high (09/19/2024).
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a group made up from among 3,000 largest U.S. stocks. Its price rose 2.4% last week, is up 10.4% so far this year and ended the week 4.1% below its all-time record closing high (11/08/2021).
AVERAGE 30-YEAR FIXED MORTGAGE RATE ..
6.09%
One week ago: 6.20%, one month ago: 6.46%, one year ago: 7.19%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEAR & GREED INDEX ..
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
FEDWATCH INTEREST RATE TOOL ..
Where will interest rates be after the Fed’s next meeting on November 7th?
Higher than now .. 0% probability (0% a week ago)
Unchanged from now .. 0% probability (0% a week ago)
0.25% lower than now .. 49% probability (61% a week ago)
0.50% lower than now .. 51% probability (39% a week ago)
All data based on the Fed Funds interest rate (currently 4.875%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
% OF S&P 500 STOCKS TRADING ABOVE THEIR 50-DAY MOVING AVERAGE:
77% (386 of the S&P 500 stocks ended last week above their 50D MA and 114 were below)
One week ago: 72%, one month ago: 73%, one year ago: 27%
% OF S&P 500 STOCKS TRADING ABOVE THEIR 200-DAY MOVING AVERAGE:
75% (375 of the S&P 500 stocks ended last week above their 200D MA and 125 were below)
One week ago: 73%, one month ago: 73%, one year ago: 32%
Closely-watched measures of market breadth and participation, providing a real-time look at how many of the S&P 500 index stocks are trending higher or lower, as defined by whether the stock price is above or below their more sensitive 50-day (short term) and less sensitive 200-day (long term) moving averages which are among the most widely-followed of all stock market technical indicators.
The higher the reading, the better the deemed health of the overall market trend, with 50% considered to be a key pivot point. Readings above 90% or below 15% are extremely rare.
WEEKLY US INVESTOR SENTIMENT (outlook for the upcoming 6 months) ..
↑Bullish: 51% (40% a week ago)
⬌ Neutral: 23% (29% a week ago)
↓Bearish: 26% (31% a week ago)
Net Bull-Bear spread: ↑Bullish by 25 (Bullish by 9 a week ago)
For context: Long term averages: Bullish: 38% — Neutral: 32% — Bearish: 30% — Net Bull-Bear spread: Bullish by 8
Survey participants are typically polled during the first half of the week.
Data courtesy of: American Association of Individual Investors (AAII).
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