Market Overview
Today's session started sluggishly ahead of the afternoon's headline event. The Federal Open Market Committee (FOMC) voted to cut the target range for the fed funds rate by 50 basis points to 4.75-5.00%. It was not a unanimous vote, as Fed Governor Bowman preferred a 25-basis points rate cut.
FOMC's Statement and Projections
The Committee has gained greater confidence that inflation is moving sustainably toward 2% and believes that the risks to achieving its employment and inflation goals are roughly balanced. The Summary of Economic Projections indicated the following changes:- 2024 unemployment rate: 4.4% (up from 4.0% in June)
- PCE inflation: 2.3% (down from 2.6% in June)
- Core-PCE inflation: 2.6% (down from 2.8%)
Fed Chair Powell's Comments
Fed Chair Powell defended the larger, 50-basis points cut as a proper "recalibration" to ensure the labor market and the economy remain solid. He emphasized that the Fed doesn't feel behind the curve with its policy rate and that the larger cut demonstrates the Fed's commitment to staying ahead.Market Reaction
There was some whipsaw trading action in the stock and Treasury markets following the FOMC's announcement at 2:00 p.m. ET and during Fed Chair Powell's press conference at 2:30 p.m. ET. Major indices hit session highs but ultimately settled lower than yesterday. Nine of the 11 S&P 500 sectors closed with declines, ranging from 0.1% (industrials) to 0.8% (utilities). The energy (+0.3%) and communication services (+0.02%) sectors were alone in positive territory at the close.Treasury Market
The monetary policy rate was cut and is likely to be cut again based on the Fed's projections. Interestingly, Treasury yields, which dropped initially, moved higher. The 10-year note yield settled higher at 3.69%, up four basis points, while the 2-year note yield settled at 3.60%, up one basis point. They had traded down to 3.54% and 3.64%, respectively, following the policy announcement. This suggests that the Treasury market could be pricing in some inflation concerns in a curve-steepening trade.Market Performance Year-to-Date
- S&P 500: +17.8% YTD
- Nasdaq Composite: +17.1% YTD
- S&P Midcap 400: +10.4% YTD
- Dow Jones Industrial Average: +10.1% YTD
- Russell 2000: +8.8% YTD
Economic Data Review
- The weekly MBA Mortgage Applications Index rose 14.2%, with refinance applications surging 24% and purchase applications jumping 5%.
- Housing starts increased 9.6% month-over-month to a seasonally adjusted annual rate of 1.356 million units, bolstered by a 15.8% increase in single-unit starts. Building permits increased 4.9% month-over-month to a seasonally adjusted annual rate of 1.475 million, aided by a 2.8% increase in single-unit permits.
- The weekly EIA Crude Oil Inventories showed a draw of 1.63 million barrels following last week's build of 833,000 barrels.
Looking Ahead
Participants will receive the following data on Thursday:- 8:30 ET: Weekly Initial Claims (consensus 232,000; prior 230,000), Continuing Claims (prior 1.850 mln), Q2 Current Account (prior -$237.6 bln), and September Philadelphia Fed (consensus 3.0; prior -7.0)
- 10:00 ET: August Existing Home Sales (consensus 3.90 mln; prior 3.95 mln) and August Leading Indicators (consensus -0.3%; prior -0.6%)
- 10:30 ET: Weekly natural gas inventories (prior +40 bcf)
Overseas Markets
- Europe: DAX -0.0%, FTSE -0.7%, CAC -0.6%
- Asia: Nikkei +0.4%, Hang Seng market closed, Shanghai +0.5%
Commodities
- Crude Oil: +1.05 @ 71.27
- Nat Gas: -0.06 @ 2.32
- Gold: +6.30 @ 2598.40
- Silver: -0.29 @ 30.70
- Copper: +0.02 @ 4.29
AAPL,AMZN,WMT,GOOGL,MSFT,FB,TSLA,NFLX,BRK.A,JPM,V,BAC
Today's News
The U.S. Federal Reserve on Wednesday delivered its first interest rate cut since the COVID-19 pandemic, trimming its key policy rate by 50 basis points. Fed chair Jerome Powell emphasized that policymakers were not in a rush to ease policy further, leading to a highly volatile trading session. The S&P 500 (SP500) hit a new all-time intraday high before ending the day down 0.29% at 5,618.26 points. The Nasdaq Composite (COMP) and the Dow (DJI) also closed slightly lower.
Small-cap stocks outperformed on Wednesday, with the Russell 2000 (RTY) index climbing 1.8% to 2,259.70, its highest level since August 1. Super Micro Computer (SMCI, Financial) rose 2.4%, MicroStrategy (MSTR, Financial) gained 5.3%, and Abercrombie & Fitch Co. (ANF, Financial) advanced 3.5%. The rate cut was seen as beneficial for small-cap companies, which tend to have more floating-rate debt compared to larger firms.
Gold futures experienced a rollercoaster ride, initially climbing 0.7% to ~$2,610/oz following the Fed's announcement, before falling into negative territory at $2,583/oz. Fed Chair Jerome Powell's comments that the rate cut should not be seen as a "new pace" of easing weighed on gold prices. The metal remains attractive as lower interest rates reduce the opportunity cost of holding non-yielding bullion.
Intuitive Machines (LUNR, Financial) saw a significant surge, jumping as much as 66% to a seven-month high after securing a NASA contract worth up to $4.82 billion. The contract involves deploying lunar relay satellites and providing communication and navigation services for NASA's Artemis missions. This contract boosts Intuitive Machines' role in establishing a long-term presence on the moon.
Progyny (PGNY, Financial) faced a setback as a significant client opted to terminate its services agreement, effective January 1, 2025. The client confirmed that there were no issues during their multi-year relationship. This announcement adds to the uncertainties surrounding Progyny's future outlook.
Vistra (VST, Financial) announced it will acquire the remaining 15% equity interest in its Vistra Vision subsidiary for nearly $3.25 billion in cash. This move will make Vistra the sole owner of Vistra Vision, which includes zero-carbon nuclear, energy storage, and solar generation assets. The company reiterated its commitment to a long-term net leverage target and significant share repurchases.
Plug Power (PLUG, Financial) secured an order for 25 MW of proton exchange membrane electrolyzer systems from BP and Iberdrola's joint venture in Spain. The project aims to decarbonize operations at the Castellon refinery and is expected to avoid 23K tons/year of CO2 emissions. The agreement includes potential expansion up to 2 GW of electrolysis capacity.
NIO (NIO, Financial) has begun deliveries of its EL8 SUV to European customers, despite the threat of punitive tariffs from the European Union. The vehicle, built on NIO’s newer NT 2.0 platform, is now available in several European countries. NIO faces a tariff of 21% as it cooperated in the EU Commission’s investigation, lower than the potential 45% for other Chinese EVs.
Rolls-Royce (RYCEY, Financial) is set to receive its first European government order for small nuclear reactors, beating out six competitors to become the preferred supplier for Czech Republic state utility CEZ. The deal, subject to regulatory clearance, could generate significant export orders for the UK industry.
Google (GOOG, Financial) won a court challenge against a €1.5 billion EU antitrust fine related to its online advertising business. The General Court annulled the fine, citing errors in the Commission’s assessment. This victory follows a recent loss in another legal fight over a larger penalty.
GuruFocus Stock Analysis
- Visa Is Still the Payment King, but What's Next? by Mateena Mujahid
- Meta Platforms: A Wonderful Company Trading at a Fair Price by Blue Chip Portfolios
- Assessing Axon's Growth Potential and Competitive Advantages by Renato Neves
