Week in Review: September 20, 2024

September 23, 2024

Recap & Commentary

Markets ended the week higher following the Fed’s decision to cut interest rates by 0.50% which spurred an equity market rally propelling both the S&P 500 and Dow Jones Industrial Average to new record highs.

That the Fed would cut rates at its meeting was a foregone conclusion. The only uncertainty was by how much. In the end, citing “the progress on inflation and the balance of risks” the Fed decided to cut rates by 0.50%.  Of late, the Fed has become more concerned with cooling labor markets, and in an effort to be proactive in supporting maximum employment, one half of its dual mandate, decided to act more forcefully. Speaking at his post-meeting press conference, Fed Chair Jay Powell said that the Fed’s actions were a “recalibration” of monetary policy designed to maintain labor market strength while returning inflation to the Fed’s longer-term target of 2%.

When pressed on whether the Fed might consider another 0.50% rate cut at an upcoming meeting, Powell stressed that any/all future policy decisions would be made meeting-by-meeting, based on available data, as opposed to a pre-determined plan. Based on its updated projections, the Fed effectively expects two more rate cuts by year end. Markets remain more optimistic, ending the week pricing in two rate cuts (a total of 0.50%) at the Fed’s November meeting, followed by an additional 0.25% cut at the Fed’s December meeting.

Economic Commentary

A modest week for economic data provided insight into the health of the consumer and housing sector.

August retail sales slowed to 0.1% following a 1.1% jump in July, the largest monthly gain since January 2023. Nonetheless, the modest increase exceeded expectations for a 0.2% decline. The data indicated that consumers remain able and willing to spend, an important consideration as investors continue to worry about the possibility of a recession.

Housing data released during the week was mixed, with housing starts exceeding expectations, while existing home sales underperformed. After declining 6.9% in July, housing starts jumped 9.6% in August, to an annualized pace of 1.356M, its best level since April. Building permits, a forward-looking indicator of future housing activity, also exceed expectations, increasing 4.9% after falling 3.3% in the July.

Existing home sales slipped 2.5% in August, falling to an annualized pace of 3.86M, their lowes level since last October. The slowdown came despite lower mortgage rates. Prices remained elevated, with the median price increasing for a 14th consecutive month to $416.7K. That likely dissuaded some potential buyers, as evidenced by the fact that first-time home buyers accounted for just 26% of sales, tied for the all-time low set in November 2021.

Weekly initial jobless claims declined by 12K to 219K, the lowest reading since mid-May. While claims data can be volatile, the current reading does not suggest any undue pressure on the labor market.

Of Note

Constellation Energy, the current owner of Three Mile Island nuclear plant, the scene of the worst nuclear accident in US history, announced plans to restart one of the facility’s reactors. Microsoft will purchase the energy to power data centers supporting cloud computing and artificial intelligence.

Market Indices   (As of 09/20/2024)

• Manufacturing PMI
• Services PMI
• New Home Sales
• Pending Home Sales
• Core PCE Inflation
• Personal Income & Spending
• Consumer Sentiment
• Weekly Jobless Claims