The Week in Review: 9/24/2024

“The line between failure and success is so fine. . . that we are often on the line and do not know it.” -Elbert Hubbard

Good Morning ,

It was another strong week for stocks.

Early in the week, gains were fueled by optimism about the Fed cutting rates by 50 basis points. The Fed delivered and gains continued until Friday, when the market closed flattish as participants digested the solid week in equities.

Friday's session was also a "quadruple witching" quarterly expiration of stock options, index options, single stock futures, and index futures.

The Federal Open Market Committee (FOMC) voted in favor of cutting the target range for the fed funds rate by 50 basis points to 4.75-5.00%. It was not a unanimous vote.

Fed Governor Bowman preferred a 25-basis points rate cut.

The directive indicated that the Committee has "gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance."

The Summary of Economic Projections showed a shift in the median estimate for the 2024 unemployment rate to 4.4% (from 4.0% in June) and a downward shift in PCE inflation to 2.3% (from 2.6% in June) and core-PCE inflation to 2.6% (from 2.8%).

The dot-plot, meanwhile, shows a median estimate for 2024 (4.40%) that implies another 50 basis points of rate cuts this year and another 100 basis points in 2025.

Fed Chair Powell defended the larger, 50-basis points cut as a proper "recalibration" to make sure the labor market and the economy remain in a solid condition and that the intent of the more aggressive move is to make sure they remain there.

He also said that the Fed doesn't feel like it is behind the curve with its policy rate and that the larger cut can be construed as a sign of the Fed's commitment not to get behind.

This thinking drew in buyers, along with a fear of missing out on further gains, and the S&P 500 and Dow Jones Industrial Average reached fresh record highs in the wake of the Fed's latest decision.

Last week's data largely corroborated the market's thinking that the Fed can orchestrate a soft landing for the economy. Retail sales and industrial production were both stronger than expected in August, weekly jobless claims remain steady below recession-like levels, and the Philadelphia Fed Index tipped back into expansion (i.e., above 0.0 reading) in September.

We also gained insight into the Fed’s outlook for the rest of 2024 and beyond in terms of how it views economic growth, inflation, and a projected policy path.

According to the quarterly Summary of Economic Projections, the Fed is estimating that the federal funds rate will conclude the year at a range of 4.25-4.50%, another 0.50% lower than it is currently. This suggests one more oversized 0.50% cut or two 0.25% cuts to conclude the year.

Only three S&P 500 sectors settled lower. The defensive-oriented health care (-0.6%) and consumer staples (-1.2%) sectors were among the laggards. Meanwhile, the energy (+3.8%), communication services (+3.7%), and financial (+2.4%) sectors were the top performers.

Market Snapshot…

• Oil Prices – Oil prices dropped on Friday but recorded a second week of gains. West Texas Intermediate crude was down 3 cents or 0.4% to settle at $71.92 a barrel, while Brent crude futures were down 39 cents, or 0.52% to $74.49 a barrel.
• Gold– Gold prices soared above $2,600 on anticipation of further rate cuts. Spot gold was up 0.3% to $2,593.80 per ounce. U.S. gold futures rose 1.2% to $2,643.30. Silver closed the week at $31.505.
• S. Dollar– The dollar hit its highest level in two weeks after the Bank of Japan left interest rates unchanged. The dollar was up 0.92% to 143.92 while the dollar index gained slightly to 100.75. Euro/US$ exchange rate is now 1.114.
• S. Treasury Rates– The U.S. 10-year Treasury yield fell about 1 basis point at 3.732% but was higher by almost 8 basis points for the week even after the Fed lowered rates by a half point percentage on Wednesday.
• Asian shares were mostly higher in overnight trading.
• European markets are trading up.
• Domestic markets are trading up again this morning.

This week, several Fed speakers will be on the docket and may be giving clues into how specific individuals foresee policy changing in the coming months.

We will also receive a plethora of housing data. With mortgage rates now the lowest since early 2023, we will see if home sales pick up. Lastly, we will receive the final look at second quarter GDP and August’s PCE report.

Have a wonderful week!

Michael D. Hilger, CEP^®

Managing Director

Senior Vice President, Wealth Management

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