The Week in Review: 9/16/2024
“If you only have a hammer, you tend to see every problem as a nail” ~ Abraham Maslow
Good Morning ,
After the worst week of the year, markets rebounded last week with their strongest showing to date.
Buy-the-dip interest was a support factor, along with upside momentum acting as its own catalyst by the end of the week. Many stocks participated, but mega caps and semiconductor shares had a major impact on index gains.
The PHLX Semiconductor Index surged 10.0%. NVIDIA was a standout performer, bouncing 15.8% following the previous week's slide.
Things looked a little shaky on Wednesday after the August Consumer Price Index stoked selling interest due to the understanding that core-CPI, which excludes food and energy, remained above the Fed's 2.0% target at 3.2% year-over-year.
But stocks quickly recovered, when the S&P 500 held above the previous Friday's low (5,402) on Wednesday's initial retreat. The strength in NVIDIA also helped get stocks back on a winning track.
Other data last week garnered muted responses from stocks and bonds. Initial jobless claims were little changed and remain below recession-like levels at 230,000 and the August Producer Price Index reflected moderating inflation at the wholesale level.
Selling interest in recent weeks was partially based on concerns about economic growth, but this week's price action signaled a shift in that thinking. Small and mid-cap stocks outperformed their larger peers by the end of the week, reflecting the belief that the U.S. economy will enjoy a soft landing and that the Fed will cut rates to secure that soft landing.
Market participants also see a higher likelihood of a 50 basis points rate cut at next week's FOMC meeting compared to one week ago. The fed funds futures market now shows a 45.0% probability of a 50 basis points rate cut in September, up from 30.0% last Friday, according to the CME FedWatch Tool.
The 2-yr yield, which is most sensitive to changes in the fed funds rate, dropped seven basis points this week to 3.58% and the 10-yr yield dropped six basis points to 3.65%.
Only one S&P 500 sector settled lower -- energy (-0.7%) -- while the information technology sector led the pack by a wide margin, climbing 7.3%.
Market Snapshot…
- Oil Prices – Oil prices dropped on Friday as crude production resumed post Hurricane Francine. West Texas Intermediate crude was down 32 cents or 0.5% to settle at $68.65 a barrel, while Brent crude futures was down 36 cents, or 0.5% to $71.61 a barrel.
- Gold– Gold prices went higher on Friday on optimism that the Fed is ready to trim interest rates. Spot gold was up 0.9% to $2,582.05 per ounce. U.S. gold futures rose 1.2% to $2,610.30. Silver finished the week at $31.074.
- S. Dollar– The dollar fell to its lowest level in nearly nine months on speculation the Fed could deliver a super-sized interest rate cut. The dollar was down 0.66% to 140.855 while the dollar index was 0.8% lower to 101.08. Euro/US$ exchange rate is now 1.114.
- S. Treasury Rates– The U.S. 10-year Treasury yield fell about 2 basis points at 3.661% as investors eye interest rate outlook.
- Asian shares were mostly higher in overnight trading.
- European markets are trading lower.
- Domestic markets are trading in the green this morning.
The Fed’s long awaited September meeting will be held Tuesday and Wednesday this week with the expected rate cut decision being announced on Wednesday. It is more or less a foregone conclusion that a rate cut will be announced.
Additionally, the Fed will release its updated Summary of Economic Projections, a report which shows the participants outlook on interest rates in addition to other economic factors. The report could indicate how aggressive of a cutting cycle we might expect in the coming months.
Investors believe the Fed is torn between a 25 bps. (0.25%) and 50 bps. (0.50%) rate cut... A 50 bps. cut now could push back subsequent rate cuts, while a 25 bps. cut could start a more gradual pace.
Other central banks will also be making interest rate decisions this week, including the Bank of England and Bank of Japan. The last Bank of Japan decision instigated a global sell off. With over a dozen central banks making interest rate decisions this week, it could prove to be a volatile one.
Have a wonderful week!!
Michael D. Hilger, CEP®
Managing Director
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