Economy
The Fed lowered rates this week by 0.25%, a move that had been expected and priced in to markets. Beyond the rate cut, there were some interesting side plots that took place at Wednesday's announcement. For starters, there were two Fed members who disagreed with the 0.25% cut, but for differing reasons. Kansas City's Jeffrey Schmid voted to not cut rates at all due to inflation risks, while recent Trump appointee Stephen Miran voted for a larger 0.5% cut. To have a situation like this where members are dissenting from the consensus, but in opposite directions, is not very common. Reuters found that this was just the sixth example since 1990, and bear in mind the FOMC meets eight times per year.
Shifting attention from the decision to the ever important Powell press conference, we were treated with a nice splash of cold water thrown on the hopes of a third rate cut at the next FOMC meeting in December. A week ago, markets were pricing in a 96% chance of another rate cut in December. When Powell spoke about the FOMC's plans, he spoke plainly. "A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it." He later added, “There’s a growing chorus now of feeling like maybe this is where we should at least wait a cycle, something like that.” (The CME Group's FedWatch tool now shows about a 60% chance of a rate cut - a significant change in a week.)
As the government shutdown enters its second month, the Fed will continue to be deprived of its flight instruments. The October jobs report is scheduled to be released this coming Friday, but will be withheld (as the September report was) until the shutdown ends.
Markets
Markets shook off the cold water Powell threw on them to still rise for the week, with the S&P 500 up 0.71% (although it was about 1% higher before the comments from the Fed chair). This was an active week in earnings season as we heard from the majority of the Magnificent 7 stocks. The AI spending trend is still in full effect and the numbers we are hearing from these companies are sometimes hard to comprehend. Hundreds of billions of dollars are being spent by these companies this year alone as they invest from the ground up in building out their visions. Despite this investment, revenue and profits continue to move higher. FactSet reports that 64% of S&P 500 companies have reported, and of those, 83% have beaten their earnings estimates. Also important to note that analysts were raising expectations for earnings heading in to earnings season.
What We're Reading
- More Home Purchases are Falling Through- WSJ
- The Age of De-Skilling- The Atlantic
Have a great weekend.
Dogwood Wealth Management