The U.S. stock market seems poised for a positive start this morning. Overseas, stocks have been putting in a constructive performance, and on our shores the S&P 500 futures are currently ahead roughly 95 points (1.70%). Today, traders will likely be busy digesting yesterday’s news. Specifically, at the close of its two-day policy meeting, the FOMC (Federal Open Market Committee) chose to reduce interest rates by 50 basis points, which was a fairly aggressive move. The central bank seems confident that inflation is finally under control, and that measures are now needed to safeguard the economy and keep the unemployment rate (currently at 4.2%) from moving higher. Looking ahead, the central bank expects to approve two more 25-basis-point rate cuts during the final months of 2024. Further reductions (another full percentage point) are planned for 2025, and some action is even expected in 2026. The market had a mixed reaction to the announcement. Initially, stocks advanced, but then retreated as investors started to worry about the health of the economy. In our view, the economy (as measured by gross domestic product) is still expanding, and it is quite possible that the Fed will be able to engineer a “soft landing” scenario.
In economic news, this morning the labor market will be an area of focus. Initial unemployment claims for the latest reported week just came in at 219,000, which was a lower number than analysts had expected. Investors ought to be pleased, given the recent concerns about the labor market. Later this morning, the monthly existing home sales numbers are set to be released, along with the U.S. leading economic indicators report.
In corporate news, this morning we heard from Darden Restaurants (DRI). The company, which operates more than 2,000 restaurants under various popular brands, delivered a mixed report. However, supportive guidance has the stock moving higher in pre-market trading. After the market closes, we will hear from package delivery service FedEx (FDX) and home builder Lennar (LEN).
Technically, the S&P 500 Index broke into new high ground (around 5,690) during the day yesterday, but quickly reversed course to close lower. This development was not too surprising, as the market encountered similar resistance in July and August. It remains to be seen if the bulls can push stocks higher from here, or if a period of consolidation might be needed. Now that the Federal Reserve’s policy meeting is over, the next big catalyst will probably be the upcoming third-quarter earnings season. Certainly, some upbeat earnings profit reports from the leading companies would be a major plus. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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