Back on top (for now)
- S&P 500, Dow tag all-time highs as Fed initiates rate-cutting cycle
- Gold sets records with stocks, tops $2,600 for first time
- This week: Fed inflation, home prices, durable goods
The final full week of September finds the S&P 500 (SPX) just off its record high, as traders absorb the implications of the Fed’s first rate cut in more than four years and look ahead to how the easing cycle could play out over time.
Given a nearly two-year buildup of expectations, last Wednesday’s cut may have initially felt anticlimactic. The SPX tagged an intraday record high shortly after the Fed announced it was lowering rates, but reversed to close down on the day. Thursday was a different story, as an energetic rally propelled the SPX to new intraday and closing highs before it ended the week with a dip:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest in an index.)
The headline: Stocks set records as Fed kicks off easing cycle.
The fine print: Fed Chairman Jerome Powell went to great lengths in his post-announcement press conference to avoid making any promises about how fast or far the central bank would continue to lower interest rates. But he did note it would be a “mistake” to assume last week’s large initial cut implied anything about the Fed’s intended pace.
The number: 1, the number of votes against last week’s half-point rate cut. Fed governor Michelle Bowman favored a quarter-point reduction, and her dissenting vote was the first from a Fed governor since 2005.
The scorecard: The Russell 2000 (RUT) small-cap index led the market:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Sector returns: The strongest S&P 500 sectors last week were energy (+3.8%), communication services (+3.7%), and financials (+2.4%). The weakest sectors were real estate (-1.3%), consumer staples (-1.2%), and health care (-0.6%).
Futures: November WTI crude oil futures (CLX4) extended their rebound off September 10’s low, ending the week up $3.25 at $71. Gold price broke above the $2,600 threshold for the first time, and December gold (GCZ4) closed Friday at a record high of $2,646.20, up $35.50 for the week. Week’s biggest gains: March sugar (SBH5) +17.2%, November canola (RSX4) +8.7%. Week’s biggest declines: October ethanol (ZKV4) -6.6%, December hard red wheat (KWZ4) -6%.
Coming this week
This week traders will get a look at the Fed’s preferred inflation gauge (PCE Price Index), along with durable goods, home prices, home sales, and the final estimate of Q2 GDP:
●Monday: Chicago Fed National Activity Index, S&P manufacturing and services flash PMIs
●Tuesday: S&P Case-Shiller Home Price Index, NAHB House Price Index, Consumer Confidence
●Wednesday: New Home Sales
●Thursday: Durable Goods Orders, Q2 GDP (final), Pending Home Sales
●Friday: PCE Price Index, Personal Income and Spending, Retail and Wholesale Inventories (advance), Consumer Sentiment
This week’s earnings include:
●Monday: AAR (AIR)
●Tuesday: AutoZone (AZO), Thor Industries (THO), KB Home (KBH)
●Wednesday: Cintas (CTAS), Micron (MU)
●Thursday: Accenture Plc Ireland (ACN), Jabil (JBL), CarMax (KMX), Compass Minerals (CMP), Costco (COST)
Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.
Life in the post-cut world
Now that the Fed has inaugurated its long-awaited monetary easing cycle, markets are poised to focus their attention on other matters. One likely candidate—the November election. While Morgan Stanley & Co. strategists believe the election could put the country on “policy paths that take economic growth in different directions,” they also point out the outcome is far from clear.1
One of the strategists’ primary takeaways is to expect the economic cycle to drive markets between now and the election. With growth slowing (although Morgan Stanley & Co. economists don’t expect a recession), this includes favoring bonds over stocks. As the analysts explain, bond yields may track lower as the Fed eases (which implies rising bond prices), while equity earnings may be challenged as growth slows.
Second, they suggest leaning into market moves “that election outcomes could accelerate.” One example is a steeper yield curve, which the analysts expect could occur regardless of who ends up occupying the White House.
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1 MorganStanley.com. Presidential Debate Targets Perceptions Over Policy. 9/20/24.