September 16, 2024
Good morning,
Stocks staged an impressive recovery last week. Interestingly, the gains in the major indexes (SPX +4.06%, NASDAQ +5.98%, Russell 2000 +4.39%, Int’l Developed +1.21%, EM +.80%) were almost the perfect mirror-image of the losses sustained respectively the week prior. Volatility is not taking a break.
The big event of the month comes on Wednesday this week. The rate cut decision, and more importantly, Fed Powell’s comments on rate cuts ahead in his press statement. As of this morning, markets expect a 40bps cut (40% voting a 25bps cut, 60% voting a 50bps cut = 40bps). This debate will continue right into Wednesday’s announcement. This setup, where the market is pushing the Fed for 50 bps would seem to be a setup for market disappointment.
That disappointment may emerge before Wednesday. With 40 bps now discounted for Wednesday’s meeting, there is still quite a bit of uncertainty. That wouldn’t be a problem for most central banks, but for some reason, the Fed has hated any sort of monetary-decision suspense or surprise for quite a long time now. It’s not out of the realm of possibility, nor is it unprecedented, that another press story emerges early this week to nudge pricing closer to what the Fed is thinking (assuming that’s 25 bps).
Be well,
Mike
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