It’s back! Fear that the economy is so strong that the Federal Reserve won’t cut interest rates as sharply or as quickly as expected. In the last few days, following on a surprisingly strong September jobs report, the market has gone from giving 50/50 odds to a second large 50 basis point interest rate cut at its November 7 meeting to pricing in doubts that the central bank will deliver even a 25 basis point cut.
Odds on a 50 basis point cut from the Federal Reserve at its November 7 meeting plunged to 0% today on the CME FedWatch tool after a strong jobs report for September showed a tick down in the unemployment rate.
Total assets under management in U.S. money-market funds rose by $38.7 billion in the week week ended October 2, according to the latest Investment Company Institute data released on Thursday. The increase puts total assets at a record $6.46 trillion, and caps the biggest quarter of inflows since the March 2023 banking crisis. The old record was set when the collapse of Silicon Valley Bank and other lenders sent a flood of cash into money-market funds as the Federal Reserve raised rates. What’s odd now is that the Federal Reserve is cutting interest rates and the financial system doesn’t seem particularly stressed.
I don’t know which candidate will win the election. Right now the polls are within the margin of error on the national level–and even tighter in the seven battleground states that will likely decide the electionm. But I do know the results on November 5 will move stocks. Some right off the bat even before the results are certified. Ans more significantly as a new administration clarifies its policy views and takes office.The results will move the stock market in general
And they will move individual stocks and sectors in particular.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, rose at a slower pace than expected on a monthly basis in August. The core PCE, which strips out the cost of food and energy, rose 0.1% from the prior month during August, below Wall Street’s expectations for 0.2% and the 0.2% reading seen in July.
The number of Americans filing new applications for unemployment benefits dropped to a four-month low last week. Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 219,000 for the week ended September 14. That’s the lowest level since the middle of May, the Labor Department said on Thursday. Economists polled by Reuters had forecast 230,000 claims for the latest week. And stocks soared.
The Federal Reserve lowered its benchmark interest rate by 50 basis points Wednesday. The vote for a 50 basis point cut was 11-1 with the only negative vote–for a 25 basis point cut rather than 50–the first dissent in the Jerome Powell era. The Fed’s dot plot showed a narrow majority, 10 of 19 Fed officials, favoring at least an additional half-point in rate cuts at Fed’s two remaining 2024 meetings. The Federal Open Market Committee to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years.
I think of Nvidia (NVDA) as this market’s warning indicator; it’s the canary in a coal mine; the bird that will die first if dangerous gases start to build up. So, yes, it’s important that Nvidia shares plunged from $134.91 on July 10 to $98.91 on August 7. And again from $128.83 on August 28 to $102.83 on September 6. But the shares are up again–15.83% last week–to $116.78 This canary seems to be sending a rather more complicated message than “Look I’m dead! See my feet in the air?” What’s the message, though?
Definitely a mixed bag in the Consumer Price Index inflation report for August released today. I think the mixed results lower the odds of an aggressive 50 basis point interest rate cut at next week’s Federal Reserve meeting. But they keep the odds of a cut–most likely 25 basis points–at 100%.
Kenvue (KVUEO) isn’t exactly new. As a stand-alone stock, Kenvue dates back only to May 2023, but the company is a spin off of Johnson & Johnson’s (JNJ) consumer division. The owner of household consumer names that include Tylenol, Nicorette, Listerine, and Zyrtec, Kenvue is the world’s largest pure-play consumer health company by sales. The stock closed on September 5 with a yield of 3.64%. Morningstar calculates that the shares are 16% undervalued and puts a $26 target price on the shares. The stock closed at $22.51 on September 5. I’m adding the stock to my Dividend Portfolio tomorrow. With the Federal Reserve extremely like to begin cutting interest rates at its September 18 meeting, a lot of investors are looking for higher yield with slid safety. I think Kenvue offers exactly that combination.
U.S. job openings fell in July to the lowest since the start of 2021 and layoffs rose, according to the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS).
Gold hit a new all-time high today of $2554 an ounce on the Comex for December delivery. Gold’s 20% or so gain in 2024 to date (as of August 26) is a result of strong central-bank buying plus Asian purchases plus anticipation that the Federal Reserve was about to cut interest rates. Now that Fed chair Jerome Powell has just about promised a cut at the Fed’s September 18 meeting it looks like gold will climb further in 2024 on the fundamentals. Bullish Wall Street targets say $2700 to $3,000 by the end of 2024. That’s a decent reason to hold gold. But the very scary geopolitical landscape over the next six months makes me anxious to add more gold even at the record nominal high for the metal.
