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Stocks Jolted By Fed's 50-Basis Point Rate Cut
The S&P 500 Index ($SPX) (SPY) today is up +0.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.25%.
Stocks today have erased knee-jerk gains after the initial 2:00 PM Eastern announcement and are trading close to the flat line again after the FOMC opted to cut interest rates by 50 basis points. The markets will now look to today’s post-meeting comments from Fed Chair Powell to see why policymakers bypassed a more typical -25 bps cut in the fed funds target range and opted for a larger -50 bps rate cut instead. Also, fresh quarterly projections in the form of the Fed’s “dot plot” will offer further insight into the path of interest rates and the economy.
Today’s reports showed that US housing starts and building permits for August were better than expected, bolstering the prospects for a soft landing and supporting stocks. US MBA mortgage applications rose +14.2% in the week ended September 13, with the purchase mortgage sub-index rising +5.4% and the refinancing mortgage sub-index rising +24.2%. The average 30-year fixed rate mortgage fell -14 bp to a 2-year low of 6.15% from 6.29% in the prior week.
US Aug housing starts rose +9.6% m/m to a 4-month high of 1.356 million, stronger than expectations of 1.318 million. Aug building permits, a proxy for future construction, rose +4.9% m/m to a 5-month high of 1.475 million, stronger than expectations of 1.410 million.
Hawkish comments earlier today from former St. Louis Fed President Bullard weighed on bonds and stocks when he said the Fed should cut interest rates by -25 bp today as the case for a -50 bp rate cut is "overblown."
The markets are discounting the chances at 100% for a -25 bp rate cut at the conclusion of today’s FOMC meeting and at 64% for a -50 bp rate cut at that meeting.
Overseas stock markets today are mixed. The Euro Stoxx 50 is down -0.36%. China's Shanghai Composite recovered from a 7-1/4 month low and closed up +0.49%. Japan's Nikkei Stock 225 closed up +0.49%.
Interest Rates
December 10-year T-notes (ZNZ24) today are down -11 ticks. The 10-year T-note yield is up +4.7 bp at 3.693%. Dec T-notes today are moderately lower on negative carryover from a slide in European government bonds to 1-week lows. T-notes also fell on today’s stronger-than-expected US Aug housing starts and building permits reports. In addition, rising inflation expectations are bearish for T-notes after the 10-year breakeven inflation rate today rose to a 2-week high of 2.133%.
European government bond yields today are moving higher. The 10-year German bund yield climbed to a 1-week high of 2.195% and is up +4.9 bp at 2.192%. The 10-year UK gilt yield rose to a 1-week high of 3.854% and is up +8.5 bp at 3.852%.
ECB Governing Council member Villeroy de Galhau said, "The ECB has cut interest rates twice and should continue to cut them," as victory over inflation is "within sight."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 32% for the October 17 meeting.
US Stock Movers
Super Micro Computer (SMCI) is up more than +2% after Needham & Co. initiated coverage on the stock with a recommendation of buy with a price target of $600.
VF Corp (VFC) is up more than +3% after Barclays upgraded the stock to overweight from equal weight with a price target of $22.
Victoria’s Secret & Co (VSCO) is up more than +3% after Barclays upgraded the stock to equal weight from underweight.
GE Healthcare (GEHC) is up more than +2% after BTIG upgraded the stock to buy from neutral with a price target of $100.
United States Steel (X) is up more than +1% after a US security panel granted Nippon Steel permission to refile its plans to purchase the company for $14.1 billion.
Extra Space Storage (EXR) is up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $204.
ResMed (RMD) is down more than -4% to lead losers in the S&P 500 after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $180.
Cencora (COR) is down more than -2% after Bank of America Global Research downgraded the stock to neutral from buy.
DaVita (DVA) is down more than -1% on signs of insider selling after an SEC filing showed CEO Rodriguez sold $9.86 million of shares on Monday.
Workday (WDAY) is down more than -1% to lead losers in the Nasdaq 100 after Needham & Co. cut their price target on the stock to $300 from $350.
Hilton Grand Vacations (HGV) is down more than -2% after Goldman Sachs initiated coverage on the stock with a sell recommendation and a price target of $31.
Incyte Corp (INCY) is down more than -1% after Truist Securities downgraded the stock to hold from buy.
Earnings Reports (9/18/2024)
Ennis Inc (EBF), General Mills Inc (GIS), Steelcase Inc (SCS).
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
