September 18th Market Overview

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Happy Wednesday, everyone.

Today's all about the Fed's big move. Markets hit new highs then pulled back as traders processed the 50 basis point rate cut.

Banks and homebuilders are surging. The broader market's still figuring out what it all means.

Lets dig in…

Executive Summary

• The Federal Reserve surprises markets with a 50 basis point rate cut, its first reduction in four years, bringing the target range to 4.75%-5%.

• S&P 500 and Dow Jones Industrial Average touch new all-time highs following the Fed’s decision, though gains moderated as the day progressed.

• Bank and homebuilder stocks rally significantly amid expectations of lower borrowing costs, potentially stimulating economic activities, particularly in housing.

Market Overview

We’re witnessing a volatile trading session today as the market digests the Fed’s aggressive rate cut.

The S&P 500 is up 0.4%, reaching a new record high of 5,689.75. The Dow Jones briefly touched 41,981.97, up over 375 points, before pulling back to a gain of 133 points or 0.3%. The Nasdaq has added 0.5%.

While initial reactions were strongly positive, some caution has emerged regarding potential economic implications.

Key Market Drivers

1. Fed Rate Cut: The Federal Reserve’s decision to cut rates by 50 basis points reflects growing confidence in a sustainable decline of inflation towards its 2% target.

2. Investor Sentiment: Anticipation of broader equity gains following the Fed’s announcement has heightened enthusiasm, particularly for growth stocks.

3. Banking Sector Resurgence: Bank stocks surged post-announcement, driven by expectations of improved lending margins with lower interest rates.

4. Housing Data: August housing starts and building permits exceeded expectations, indicating resilience in the real estate market.

Stock Spotlight

1. $KBE (SPDR S&P Bank ETF): Jumped 2.4%, with major players like ServisFirst Bancshares and Glacier Bancorp leading gains over 4%.

2. $XHB (SPDR S&P Homebuilders ETF): Reached a new record high, bolstered by expectations of declining mortgage rates post-Fed cut.

3. $X (United States Steel): Advanced more than 3% after reports that a review of Nippon Steel’s $14.1 billion bid may be delayed until after the November election.

4. $GIS (General Mills): Stock dropped 1% as the company reported a 14% decrease in quarterly profit due to higher input costs.

5. Victoria’s Secret: Gained 5% following an upgrade by Barclays, which highlighted a promising upside for the stock.

Other Magnificent 7 Updates

Not much on the big 7 today.

Other Notable Company News

1. Intuitive Machines: Shares soared 51% after securing a $5 billion space network contract from NASA.

2. $CWST (Casella Waste Systems): Pulled back over 4% following the announcement of a $400 million equity offering of its Class A common stock.

Sector Watch

Bond Market

Treasury yields inched up following the Fed’s decision. The 10-year note yield rose nearly 4 basis points to 3.67%, while the 2-year Treasury yield added about 5 basis points to trade at 3.64%. We expect continued dynamic responses in the bond market as traders reassess their positions in light of the new interest rate environment.

Policy Watch

1. Fed Chair Powell characterized the rate cut as a “recalibration” of central bank policy, emphasizing that decisions will continue to be made on a meeting-by-meeting basis.

2. The Fed’s updated policy statement noted that job gains have “slowed” but expressed “greater confidence” that inflation is moving sustainably toward the 2% target.

3. Fed Governor Michelle Bowman dissented, preferring a smaller 25 basis point rate cut.

4. Powell reiterated the central bank’s commitment to balancing inflation control with labor market stability, noting that careful monitoring of economic indicators, such as job growth, remains critical.

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- JB

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