Short On Time… Executive Summary
The Fed cut rates last week, but we knew that was coming. Of course, they talked tough last time like they might not, but remember, pay attention to what they do, not what they say. They have also stopped quantitative tightening (QT), which is selling bonds on their balance sheet to push interest rates higher. There is speculation they will start buying bonds again to help provide liquidity in the system which will help to keep rates down as a secondary consequence. Regardless of what Powell does in the remainder of his term, whomever Trump appoints will likely push for more rate cuts. Stocks normally like rate cuts. We’ll write more about next year’s prospects in our Q1 update, but we may see some back-and-forth next year. For now, stocks continue to grind higher as we await the seasonal and usually on time, Santa Claus rally.
The Week On Wall Street
Stocks ended last week mixed. A widely anticipated Federal Reserve decision on interest rates and a rotation into non-tech areas helped push the Dow Industrials higher, while the broader market and technology stocks lagged behind. The Standard & Poor’s 500 Index declined 0.63 percent, while the Nasdaq Composite Index fell 1.62 percent. Meanwhile, the Dow Jones Industrial Average advanced 1.05 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, rose 0.89 percent.
Market Rotation After Fed Decision
Stocks stayed in a fairly tight trading range over the first half of the week. Tech remained a strong spot on Monday despite slight to modest declines in all three major averages. By Tuesday’s close, all three major averages were slightly to modestly lower week-to-date as the Fed’s last interest-rate-setting meeting of the year approached. Then, on Wednesday morning, stocks rose ahead of the Fed’s announcement that it was lowering rates by a quarter percentage point—a widely expected move. By the close, all three major averages ended in the green. A market rotation theme dominated the rest of the week, as investors shifted into cyclical areas of the economy that are likely to benefit from an economic rebound. The Nasdaq ended Thursday’s session lower, while the S&P and Dow Industrials hit fresh record closes. The Russell 2000 Index of small-cap stocks also notched new closing highs. The rotation into value stocks continued on Friday, with some AI names coming under pressure. The financial, healthcare, and industrial sectors were among the groups that seemed to benefit from the rotation.
No Surprise, Just Tea Leaves
Last week’s rate decision from the Federal Reserve was no big surprise. Speculators had already priced in this outcome weeks ago. Now for reading the tea leaves: First, Fed Chair Powell stated in his press conference on Wednesday that they have ruled out a rate hike for the foreseeable future but also noted that it would be a higher bar for further rate reductions. Another point was the degree of dissent: the vote was 9-3. Then on Friday, voting members who dissented expressed views on inflation and jobs, and which risk was the more important one to address through monetary policy.
This Week: Key Economic Data
Monday: Homebuilder Confidence Index.
Tuesday: Employment Reports, Oct.* (limited) + Nov. (full). Retail Sales, Oct.* Business Inventories, Sept.* Purchasing Managers Index (PMI)—Services. Purchasing Managers Index —Manufacturing.
Thursday: Consumer Price Index (CPI). Weekly Jobless Claims. Philadelphia Fed Manufacturing Survey.
Friday: Existing Home Sales. Consumer Sentiment.
* indicates publication of a report delayed by the government shutdown
This Week: Notable Companies Reporting Earnings
Wednesday: Micron Technology, Inc. (MU)
Thursday: NIKE, Inc. (NKE), Cintas Corporation (CTAS), FedEx Corporation (FDX)
Friday: Paychex, Inc. (PAYX)
Stay tuned...
