Financial Update: Week of September 23, 2024
With the Fed aggressively cutting interest rates last week, now is the perfect time for an update.
Overall, financial markets welcomed the new lower benchmark overnight lending rate set by the Fed, with all-time-closing highs in the Dow and S&P 500 achieved.
Tallying the week, the S&P 500 increased by 1.36%, a weekly closing high; the Nasdaq 100 rose by 1.42%, and the Dow Jones Industrial Average rose by 1.62%, also a record weekly closing high.
50-Basis-Point Rate Cut
Ask, and you shall receive (eventually)! Markets have wanted a rate cut for quite a long time now, and it was finally delivered last week. And it was not just a run-of-the-mill 25 basis points either. The Federal Open Market Committee delivered a supersized 50-basis-point rate cut in an effort to stimulate the labor market and continue economic expansion.
In an action that suggests inflation is in the rearview mirror, Federal Reserve Chair Jerome Powell started the first monetary easing campaign in four years with a bang.
In the accompanying Fed Meeting press release, the Federal Reserve said: “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”
Powell created a brand new financial buzzword in the process: “Recalibration.”
Recalibration Manifestation
Many of us remember financial buzzwords of the past, like inflation being “transitory,” which was not the case.
But a new word was born last week during the post-Fed rate decision press conference: recalibration.
The concept behind this sure-to-hear-more-about word is simple, and it took market participants a day to fully interpret and digest. It could be interpreted as a message that the easing cycle (rate-cutting campaign) is not about the economy being in recession, but rather that it is designed to continue fueling the economic expansion.
Moreover, the Fed’s action was deemed appropriate for shoring up the labor market.
These developments mark some different messaging and different actions than history would suggest. Rate cutting near stock market all-time highs is not something that would seem probable based on traditional economics, but here we are.
Rate Cut Market Reaction
Markets loved the Fed rate cut action, with the S&P 500 reaching all-time highs on the day of the announcement but fading late in the day.
However, in a “delayed fuse rally fashion” during the next trading session, the S&P 500 and Dow Jones Industrial Average reached fresh all-time daily closing highs.
The most cited reason for the soaring asset values on the day after the Fed rate decision was Federal Reserve Chair Jerome Powell’s “recalibration” commentary.
The consensus at the time was one of rate cuts shoring up the labor market and continuing the economic expansion, versus the need to stimulate the economy as a whole due to recession. This equates to a soft-landing consensus being achieved, at least for now!
Let’s remember that the S&P 500 closed at a weekly all-time closing high.
Treasury Yields / Normalization Continues
The 2/10 Treasury yield curve normalization continued last week, with the 10-year yield closing the week near 3.727%, and the 2-year Treasury yield closing near 3.597%.
So, the spread between 10s and 2s closed the week near 14 basis points, its third consecutive week of positive yield normalization, or “uninversion.”
Retail Sales Top Estimates
August retail sales data also fueled investor optimism, with data showing a rise of 0.1% in August, compared to expectations for a 0.2% decline.
Some commentary indicated that the stronger-than-expected retail sales data combined with falling energy prices. Consumers continue to spend freely despite the slowing in the labor market. It’s unclear if this is a smart move. Credit card balances have increased explosively throughout the recent inflationary period, and many Americans are dealing with high interest rate balances.
But this is America, and we are good at spending! Hopefully, the rate cut from the Fed last week will reduce overall interest payments to those with variable APRs in the coming months.
This Week
The economic news continues this week, with consumer confidence data, final lGDP data, Chair Powell’s comments at the U.S. Treasury Market Conference on Thursday, and Core Personal Consumption Expenditures data, the Fed’s preferred inflation metric on Friday.
Meanwhile, markets will continue to digest the recent interpretation of the Fed 50-basis-point rate cut. The more lenient lending environment should stimulate lending and generate additional activity in the financial markets.
As always, if you have any questions or would like to discuss your portfolio, do not hesitate to reach out. I am always here as a resource for you.
Disclosure:
This material provided by Levitate. Levitate is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc. Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance does not guarantee future results. The information provided has been derived from sources believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does is constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned.
Disclosure:
This material provided by Levitate. Levitate is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc. Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance does not guarantee future results. The information provided has been derived from sources believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does is constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned.