September 22, 2024
Volume 11, Issue 38
Weekly Recap
The domestic large-cap equity indexes moved to record highs last week as stocks celebrated the kickoff to what many expect to be a prolonged Federal Reserve rate-cutting cycle. The rally was also relatively broad, with the smaller-cap indexes outperforming, although they remained below previous peaks. For example, the small-cap Russell 2000 ended last week roughly 9 percent below the all-time high it established in November 2021. The event dominating sentiment during the week was the Fed’s rate-cut announcement following its policy meeting concluding Wednesday. Over much of the previous week, according to futures markets tracked by the CME FedWatch Tool, opinion had been roughly split as to whether policymakers would cut rates by a quarter point (25 basis points, or 0.25 percentage points) or a half point (50 basis points, or 0.50 percentage points), before leaning toward 50 basis points as the meeting approached.
The initial reaction to the Fed’s decision to “go bigger” and cut rates by 50 basis points – the first cut of any size since March 2020 – was relatively muted, with the S&P 500 falling slightly to end the day. Indeed, market declines in the wake of the start of a Fed rate-cutting cycle have not been unusual, occurring on two out of five such occasions since the mid-1990s. That said, the celebration of the news seemed to begin on Thursday morning, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all surging to new all-time highs.
Last week’s economic data had an upbeat overall tone, leading critics of the Fed’s decision to argue that policymakers had moved too decisively. On Tuesday, the Commerce Department reported that retail sales had risen 0.1 percent, which was more than expected and which followed an upwardly revised jump of 1.1 percent in July. More evidence that consumers remained in good shape arrived Thursday in the form of a downside surprise in weekly jobless claims. Continuing claims also fell to their lowest level in three months.
Traders also seemed encouraged by some signs of life in the troubled housing sector. The Commerce Department reported on Wednesday that building permits rose 4.9 percent in August, their biggest monthly gain in a year and taking them back to their highest level since March. On Thursday, however, the National Association of Home Builders reported that sales of existing homes had unexpectedly fallen 2.5 percent in August. Fed Chair Powell, in his post-meeting press conference on Wednesday afternoon, stressed that the central bank had limited influence on housing prices and easing the current tight housing supply. The yield on the benchmark 10-year U.S. Treasury note rose – but not dramatically – in the wake of the Fed’s Wednesday action, touching its highest intraday level since September 5. Bill rates dropped significantly, of course, as 2T yields dropped a touch and 5T yields drifted a little higher. Long-bond yields rose to over 4 percent again.
Market Monitor
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks. Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
The Federal Reserve’s Federal Open Market Committee lowered the federal funds rate on Wednesday by 50 basis points to a target range between 4.75 and 5 percent, marking the first rate cut since 2020. Fed officials hiked rates 11 separate times between March 2022 and July 2023 to battle inflation, which has since dropped from its year-over-year high of more than 9 percent in June 2022. This cut came in the wake of successive jobs reports that seem to indicate a weakening U.S. labor market; maintaining low unemployment is the other half of the Fed’s dual mandate, in addition to keeping inflation in check. In a press conference following the central bank’s decision, Fed Chair Jerome Powell said he hoped the rate cut would improve “price stability without fostering higher rates of unemployment.” It was also a win for devotees of the Purple Tie Theory.
The likelihood of a “soft landing” has gone up.
On a monthly basis, retail sales increased 0.1 percent from July to August (seasonally adjusted), and sales were up 2.1 percent from August 2023.
In August, industrial production rose 0.8 percent after falling 0.9 percent in July. Similarly, the output of manufacturing increased 0.9 percent in August after decreasing 0.7 percent during the previous month.
Total housing starts in August were above expectations.
In August 2024, existing-home sales fell in the South, West, and Northeast, while the Midwest registered no change. Year-over-year, sales slipped in three regions but remained stable in the Northeast.
In the week ending September 14, the advance figure for seasonally adjusted initial jobless claims was 219,000, a decrease of 12,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 230,000 to 231,000. The 4-week moving average was 227,500, a decrease of 3,500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 230,750 to 231,000.
How five Wall Street investors will trade falling interest rates. If it’s too good to be true, it is.
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.
- 5 Things I Learned About Retirement Planning (Christine Benz & Susan Dziubinski)
- Trusting the wrong people (Tadas Viskanta)
- Our Balancing Act (Jonathan Clements)
- Don’t Overlook These Crucial Parts of Your Retirement Plan (Morningstar)
This is the best thing I’ve read recently. The sleuthiest. The most disconcerting. Niagara Falls. Yellowstone.
Before last week and over the past 40 years, the Federal Reserve has cut interest rates 12 times when the S&P 500 was within 1 percent of its all-time high. Each of these 12 times, the S&P was higher one year later and averaged a 15 percent annual return.
“More fiction has been written in Excel than in Word.”
~ Morgan Housel
Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets. Madison Avenue Securities, LLC | 13500 Evening Creek Drive N, Suite 555 | San Diego, CA 92128 US
