Weekly Market Commentary September 16th to September 20th 2024
The Federal Open Market Committee started a new monetary policy easing cycle with a bang on Wednesday, cutting the Fed Funds Rate by 50 basis points to a new target of 4.75 – 5.00%. The Committee voted 11-1 on the aggressive action, logging the first policy dissent from a Governor since 2005. The magnitude of the move shows the FOMC’s confidence that inflation is moving sustainably to the 2% target and shifts more focus to the full employment side of their dual mandate. Chairman Powell went on to state that the risks to achieving each are now “roughly in balance.”
The Fed’s dot plot of forward projections now implies an additional 50 basis points in cuts by year end along with another 100 in 2025. While economists were predominantly surprised by the aggressive start to the easing cycle, traders got it right, with a majority pricing in a 50 basis point move through the futures market. The move led to a further steepening (normalization) of the yield curve, with the yield on the 2-Year U.S. Treasury pulling back and the 10-Year modestly increasing. The shortest end of the yield curve between 3 months and 1 year remains notably inverted.
Retail Sales advanced modestly in August by 0.1%, ahead of consensus estimates. Consumers continued to spend at non-store retailers and general merchandise stores, while food, beverages and gasoline sales pulled back, both as a function of volume and price declines.
The S&P 500 advanced to new highs following the rate news, closing the week higher by 1.4% to 5,702. The Nasdaq Composite advanced as well, higher by 1.5%. The yield on the 10-Year U.S. Treasury closed the week modestly higher by 9 basis points to 3.74%, ending the week with a positive spread over the 2-Year of 13 basis points.
Key economic releases next week include Durable Goods, Revised Q2 GDP, Consumer Confidence, along with Personal Income and Outlays. Expect to hear from plenty of Fed Governors making the rounds with their take on the latest announcement as they have undoubtedly anxiously been awaiting the end of the quiet period.
