Market Update for Week 38

Gordon Achtermann |
Categories
Investing

 

I'm trying out a new approach this week because my data source from before may be going away.

 

Weekly Market Recap 

The Statistical Week in Review 

  • Retail sales grew 0.1% m/m 
  • Housing starts increased 9.6% saar* 
  • FOMC reduced the fed funds rate 0.5% to 4.75%-5.00% 
  • The S&P 500 was up 1.4% this week, ending Friday's session at 5,702.55, shy of the index's closing high of 5,713.64 and its intraday high of 5,733.57. Both were all-time records set on Thursday, a day after the Fed's rate cut.

* saar = seasonally adjusted annual rate

Key Data in the Week Ahead 

  • Flash PMI **
  • House price index 
  • 2Q24 GDP (final estimate) 

** The Purchasing Managers' Index (PMI) is a monthly survey-based economic indicator that tracks the health of the manufacturing and service sectors

Thoughts of the week 

Last week, the Fed kicked off its much-anticipated easing cycle with a bold move. It cut the policy rate by a jumbo 50bps, surprising many who expected a more regular 25bps cut seen at the start of a soft-landing easing cycle. This move has left investors wondering about the rationale behind it and its implications for markets and the economy.


Despite strong economic indicators leading up to the FOMC meeting – including the Aug. retail sales report that beat expectations – the Fed chose to go big. Historically, the Fed had begun its easing cycle with an outsized cut when the economy faced an imminent downturn. Such a downturn, as shown in the chart of the week, is typically characterized by a sharp deterioration in real retail sales momentum, as seen in Jan. '01 and Sep. '07. However, with current sales momentum still solid, the outsized cut was atypical. In its defense, the Fed characterized this move as a “recalibration” of rates, emphasizing that it does not set the pace for future cuts.


Investors were worried that a 50bps reduction, in the absence of apparent economic concerns, may signal hidden economic weakness. However, Chair Powell’s repeated reassurances that the economy is still strong and that the jumbo cut is aimed to keep it that way seems to have eased those concerns. 


While the dot plot*** suggests future cuts will likely be gradual, this cut will shorten the window of opportunity for investors looking to diversify out of cash.

*** The Fed’s dot plot is a chart that records each Fed official’s projection for the central bank’s key short-term interest rate. (https://www.bankrate.com/banking/federal-reserve/how-to-read-fed-dot-plot-explained/)

Retail sles momentum bar chart

 

syle box returns and secor returns YTD

Sources: JP Morgan, MT newswires

All the Best,
Gordon Achtermann, CSRIC®, MBA, CFP®

Gordon@yourbestpathfp.com
703-573-7325


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