Results of Fed’s expected cut to interest rates

The Federal Reserve’s decision on interest rates will be announced at 2 p.m. Eastern on Wednesday.

From @TheEconomist article, “The Federal Reserve’s interest rate cuts may disappoint investors.”

The concern for markets is that they have gone too far in pricing the Fed as a single mandate central bank that is, and will continue to be focussed exclusively on the “maximum… pic.twitter.com/v1pJGCxsmK

— Mohamed A. El-Erian (@elerianm) September 18, 2024

Jeffrey Gundlach, CEO of DoubleLine Capital, stated at the Future Proof investment conference on Tuesday that “the Fed needs to cut rates by 150 basis points pretty quickly.” He speculated that the Fed would start with a 50 basis point cut on Wednesday. Ahead of the Fed’s decision, bond yields were observed ranging from 3.6% to 6.64%.

The impressive stock market rally is no longer about a handful of tech stocks.
Per Bloomberg, the S&P’s equal-weighted version — one that gives Target Corp. as much clout as Microsoft Corp. — hit a record high.”#economy #markets #investing #investors @markets pic.twitter.com/2n9k1ucYxT

— Mohamed A. El-Erian (@elerianm) September 16, 2024

Weekly mortgage applications will be released at 7 a.m., followed by housing starts and building permit data at 8:30 a.m. Several stocks hit new highs on Tuesday.

JPM DESK:

.. the US Consumer continues to outperform all expectations .. However, with the Cleveland Fed’s real-time inflation forecast at 2.27% for September (2.07% PCE), compared to 2.5% official CPI for August, the Fed may view inflation as solved and thus Fed Funds is too… pic.twitter.com/D58IKEs4iX

— Carl Quintanilla (@carlquintanilla) September 18, 2024

Visa is up 9% in a month, Mastercard is up about 7% in a month, and American Express is up 5.4% in a month. Chartmaster Carter Worth identified that three defensive sectors—utilities, real estate investment trusts (REITs), and consumer staples—are outperforming the market. The S&P utilities sector has a relative strength index (RSI) of 76, indicating it is overbought. Utilities have risen by 25% in six months, and the S&P real estate sector also has an RSI above 70, up roughly 18% in three months. The RSP is up 3.4% in a month and 7% in three months. General Mills is up 12.4% in the past three months and reports Wednesday morning before the bell. The stock is currently yielding a 3.2% dividend. Wednesday’s trading session is poised to be significantly influenced by the Federal Reserve’s interest rate decision. Investors should also keep an eye on key performers and sector strength, particularly in defensive sectors such as utilities and real estate. The stock market ended Tuesday little changed as traders await the Federal Reserve’s key interest rate cut decision. The broad-market index touched a record high earlier in trading and ended the day just 0.03% higher. The Dow Jones Industrial Average inched down 15.9 points, or 0.04%, after also hitting a fresh record during the session. The Nasdaq Composite added 0.2% for the day. Federal Reserve meetings are often predictable events, with policymakers telegraphing their intentions ahead of time. Fed watchers are fairly certain there will be a rate cut, but they are divided on whether it will be the traditional quarter-percentage-point (25-basis-points) reduction or a more aggressive 50-basis-point cut. The Federal Open Market Committee has held its benchmark fed funds rate at the highest level in 23 years, a range between 5.25%-5.5%, since it last raised rates in July 2023. The Department of Transportation said Tuesday that Alaska Airlines and Hawaiian Airlines could go through with their merger agreement, but they must maintain the value of their frequent-flyer miles programs and several key routes. They must also keep “essential air support” for rural areas and maintain current levels of service for passenger and cargo routes between the Hawaiian islands, according to U.S. Secretary of Transportation Pete Buttigieg. The two airlines announced plans to combine in December and plan to keep each carrier’s brand but operate under a single platform. Tech mergers and acquisitions have declined significantly, falling to $544 billion last year after peaking at $1.5 trillion in 2021, according to Dealogic. So far in 2024, tech mergers and acquisitions have totaled $465 billion. With the upcoming presidential election, Big Tech faces uncertainty in regulatory policies. According to Sergio Letelier, Hewlett Packard Enterprise’s head of corporate development, the industry is “at a crossroads.” Snap unveiled the fifth generation of its Spectacles augmented reality glasses on Tuesday.

Fed’s interest rate decision anticipated

The new glasses, which can overlay digital graphics onto the physical world, are only available for developers who must commit to paying $99 a month for a full year if they want to develop any AR apps. Snap is also partnering with ChatGPT maker OpenAI on artificial intelligence tools for the glasses. Stocks were headed for a lower open after the August consumer inflation report matched expectations at the headline level. Traders are now overwhelmingly expecting a quarter percentage point interest rate cut at the Federal Reserve’s meeting next week. The consumer price index (CPI) for August rose 0.2% month over month, bringing the annual inflation rate to 2.5%, its lowest since February 2021. Core inflation, which excludes volatile food and energy prices, came in a little hotter than expected at 0.3% month over month, compared to the 0.2% estimate. Banks are facing challenges. Warren Buffett continues to sell shares of Bank of America. Goldman Sachs’ analysts downgraded Morgan Stanley despite its high yield, criticizing its strategic direction and lowering price targets across the banking sector. Citi has raised its price target for AT&T to $24 per share from $21. This comes as we approach what is anticipated to be a robust AI-driven iPhone upgrade cycle. AT&T CEO John Stankey mentioned that carrier offers on the new iPhone 16 are similar to last year’s, but he is unsure if there will be a significant upgrade cycle immediately. GameStop shares dropped 10% following a surprise quarterly profit. However, revenue fell more than 30% and missed estimates. The company plans to raise more funds by offering up to 20 million shares. Jefferies upgraded Williams-Sonoma to a buy from hold, increasing its price target to $156 per share from $148. Analysts are optimistic about the high-end home store’s trajectory given the anticipated Federal Reserve rate cuts. Amazon is opening new Fresh supermarket locations, more than a year after CEO Andy Jassy halted expansion of the Fresh line due to unmet company expectations. At least 22 completed Fresh stores remain vacant or unopened. Citi has made Walmart a top pick in retail. After meetings with Walmart’s management, analysts identified three key bullish factors: strong back-to-school momentum, long-term confidence, and retail advertising opportunities. They have a buy rating on Walmart but with a price target below current stock levels. Wells Fargo has noted a challenging environment for Nike, particularly citing weak direct-to-consumer sales and struggles in China. Analysts are not expecting much positive news from Nike’s fiscal 2025 first quarter earnings, set to be released on Oct. 1, but are focused on the investor day on Nov. 19. Wingstop has not raised prices, leading to a 28.7% increase in same-store sales, driven by customer visits. CEO Michael Skipworth praised the company’s NFL advertisements for their strong return on investment and highlighted significant opportunities for brand awareness.