As expected, the Fed left rates unchanged, but Chair Powell hinted at a possible rate cut in September. Neither the FOMC statement nor Powell’s comments were particularly dovish, but the US central bank is increasingly focusing on the loosening of the labor market.
- Statement (changes redlined):
- Chair Powell’s comments:
The downside risks to the employment mandate are real now. … The time is coming when it will be appropriate to dial back that level of restriction so that we can address both mandates.
It’s going to be inflation data, it’s going to be the employment data, it’s going to be the balance of risks as we see it – it’s going to be the totality of all of that … It’s just a question of seeing more good data.
- The market now anticipates nearly three 25 bps rate reductions before the end of the year, …
- with some possibility of a 50 bps reduction in September or December.
- Treasury yields declined sharply.
US Economy
- The June PCE inflation report was in line with forecasts, boosting rate cut expectations.
- Housing inflation slowed.
- The market is now pricing over 70 bps of Fed rate cuts this year, with a chance of a 50 bps rate reduction in September.
- The 2-year Treasury yield continues to trend lower.
- Consumer spending increased less than expected in June but remains resilient.
- Personal savings as a percentage of disposable income remains well below pre-COVID levels.
- Next, let’s take a look at the trends in US federal government spending through 2023 (from CBO).
- Total spending (nominal):
- Total spending as a share of GDP:
- The Misery Index remains below 10%, which does not signal stagflation.
- Manufacturers’ outlook for the next six months has been improving. (2 charts).
- Credit card delinquencies have been rising.
Source: @business Read full article
- The U. Michigan’s consumer survey measure of buying conditions for household durables has been falling this year.
- At the same time, luxury spending by Americans traveling abroad is trending higher, according to BofA customer data. The upper-income households continue to spend.
- Job openings edged lower in June but were above expectations.
- The upside surprise was primarily driven by surging state and local government vacancies.
- Treasury yields moved lower as the labor market cools.
- Goldman has been bullish on US economic growth next year.
Source: Goldman Sachs; @MikeZaccardi
- Here are the GDP growth probabilities from Morgan Stanley for 2024 and 2025.
- Jobless claims have risen over the past few weeks, significantly exceeding the average of recent years
- Morgan Stanley sees the unemployment rate holding steady at 4.1%.
Market Data
- The rotation from mega-cap stocks to smaller-capitalization shares continues.
- However, tech positioning remains elevated.
- This is a key week for earnings reports.
Source: BofA Global Research; @Mayhem4Markets
- The overall tech positioning remains elevated, but hedge funds have been cutting exposure.
- Momentum stocks have been lagging.
- According to the Conference Board’s survey, US households haven’t been this bullish on stocks in years.
- Fund flows continue to show growing investor enthusiasm, …
Source: Deutsche Bank Research
- … diverging from economic fundamentals.
Source: Deutsche Bank Research
- Nvidia’s price action closely mirrors Cisco’s run-up to its 2000 peak.
Source: Deutsche Bank Research
- The S&P 500 held its uptrend support.
- Is the S&P 500 rally done for the year?
Source: @markets Read full article
- NYSE shares have shown broad participation in the market rally.
- But that hasn’t been the case for Nasdaq stocks.
Great Quotes
“Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?” — George Carlin
Picture of the Week
Tiger siblings, India
All content is the opinion of Brian Decker
