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Fed’s Next Move: Cooling the Party or Fueling Asset Inflation

by diego September 23, 2024

Is the Fed taking away the punch bowl or just priming the pump for more asset inflation?

 

U.S. equities hit a new all-time high (S&P 500 +1.39%). Gains came in a week that saw the Fed’s long-awaited dovish pivot and data releases continuing to support a soft-landing thesis. The best sectors were energy (+3.80%) and communication services (+3.73%); the worst sectors were consumer staples (-1.18%) and real estate (-1.15%).

 

  1. The Fed lowered rates by 50 basis points (bp), the higher end of 25-50 bp expectations. In essence, the Fed is stating that its main focus now is fighting rising unemployment, having tacitly declared a near victory on inflation.
  2. This is the second-longest period between the last Fed rate hike and the first cut (146 days), but it is the longest for the S&P 500.
  3. According to Piper Sandler, the last two times the Fed cut rates 50 bp for the first cut, recessions followed.
  4. The combination of 10 more 25 bp cuts in Fed funds coupled with double-digit earnings growth would be unprecedented and indicate a successful soft landing.
  5. The economic outlook depends on the labor market and resultant consumption patterns. With labor softening (both jobs and wages) and credit levels rising, consumption is likely to weaken despite rate cuts (because monetary policy works with long lags).
  6. The Atlanta Fed's GDP Now model raised Q3 real GDP to 3.0% from 2.5% following the better-than-expected retail sales and industrial production reports from August.
  7. University of Michigan consumer confidence rose more than expected to 68.5 from 67.9.
  8. After the first rate cut, historically, the best sectors are consumer staples, healthcare, and utilities.
  9. It is possible that a mild recession or even a noticeable slowdown could lead to a more significant stock market downturn due to high earnings growth expectations and high valuations.
  10. Net interest expense as a percentage of tax revenue is now 17%, almost as high as the defense budget.

Source: Bob Doll, Crossmark Investment CEO

 

Market and Index Changes for the Week Ending 9/20/2024

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

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