Weekly Market Report: September 20th, 2024
Markets last week enjoyed a healthy dose of easing with the FOMC delivering the first rate cut of the cycle. Equity markets rallied with the S&P 500 marking a new record high, ending the week up 1.4%. Developed (+0.9%) and emerging (+2%) international markets both closed higher as well. Interest rates fell on the short end in sympathy with Fed Funds but edged higher over the longer maturities. Commodity markets closed higher with oil rising nearly 5%, now back up over $70/barrel. The USD weakened slightly (- 0.4%) versus most currencies leaving it relatively flat year-to-date.
Market Anecdotes
- U.S. equity markets cheered policy developments last week with the S&P marking a new record high as economic soft landing optimism prevailed.
- The Atlanta Fed GDPNow model is currently forecasting 2.9% GDP growth for the third quarter.
- Strategas made note that a key to the soft landing scenario is the need for struggling areas of the economy (manufacturing, housing) to turn up before the softening labor market dries up services spending.
- With the cutting cycle officially underway, markets have more clarity on monetary policy, but we expect questions will persist regarding the overall path of the economy and geopolitics.
- The FOMC ushered in a new era of easing by delivering a notable 50 bps rate cut, leaving markets to handicap exactly where and how fast the target policy rates will go with the median SEP suggesting two more 25bps cuts remaining this year.
- Futures markets were quick to price in a slightly more aggressive pace of easing this year with a 75% probability of getting 75 bps of easing by year end.
- There has been and will continue to be ample debate surrounding what the “neutral” interest rate is for the U.S. economy. Of note is that Powell acknowledged the neutral rate is “probably significantly higher” than what it was pre-pandemic.
- Full cycle easing expectations given the Fed’s estimated neutral rate would see 7 or 8 rate cuts but markets are pricing in closer to 8 or 9 rate cuts over the coming year.
- The PBOC and BoJ conducted policy meetings last week as well with both opting to maintain rates at current levels.
Economic Release Highlights
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Retail Sales grew 0.1% in August, above the spot forecast of -0.3%. Ex-Vehicles (0.1% vs 0.3%) and ExVehicles & Gas (0.2% vs 0.3%) readings both came in slightly below consensus.
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Existing Home Sales in August registered 3.860M, slightly under the spot forecast of 3.90M but within the
consensus range. -
Housing Starts (1.356M) and Permits (1.475M) both came in slightly above forecasts for August.
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The Housing Market Index registered 41, in line with both the spot consensus (42) and forecast range of 38-
42. -
Industrial Production in August handily exceeded forecasts (0.8% vs 0.1%) and the consensus range of 0% to
0.5%.
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