S&P 500 Rebounds as Fed Plans Size of September 2024 Rate Cut

The trading week ending Friday, 13 September 2024 saw the S&P 500 (Index: SPX) rise 4.0% above its previous week’s close. The index ended the week at a level of 5,626.02, almost erasing the previous week’s decline.

During the past week, there was one overarching factor that influenced investor expectations, which ties to the Federal Reserve’s upcoming interest rate cut set to be announced on Wednesday, 18 September 2024. The answer to the question “how big will the cut be?”

Going into the week, there were very high odds the Federal Reserve would enact a quarter point reduction in the Federal Funds Rate. But that changed. By Friday, 13 September 2024, the CME Group’s FedWatch Tool projects a 56% probability the first cut will be 0.25% and a 44% chance it will be 0.50%.

For the dividend futures-based model, that certainty there will be a cut, the new uncertainty of its size, and speculation over what will come after has led investors to shift their forward-looking focus from 2024-Q3 outward to the more distant future quarters of 2024-Q4 and 2025-Q1 ahead of the Fed’s announcement.

At least, that’s how we interpret what the latest update to the alternative futures chart shows. We find the trajectory of the S&P 500 is consistent with investors focusing their forward-looking attention on either 2024-Q4 or 2025-Q1.

Looking over the market moving headlines of the trading week ending 13 September 2024, we do find something remarkable. Before Friday, 13 September 2024, a push was being made to set the expectation the Fed’s upcoming rate cut would be just a quarter point. While that changed on Friday, the momentum for that change has been building since the weak August 2024 jobs report was released a week earlier.

Monday, 9 September 2024

• Signs and portents for the U.S. economy:

• Oil prices edge up as storm nears US Gulf Coast after week of heavy losses
• US inflation may soon undershoot Fed’s 2% target

Bigger trouble developing in China:

• China’s exports likely slowed further in August as trade tensions mount: Reuters poll
• China’s Deflationary Spiral Is Now Entering Dangerous New Stage

• China’s consumer prices rise in August, PPI stuck in deflation

High-Frequency Indicators Provide Clear Snapshot Of China’s Dismal Recovery

Chinese car sales fall for fifth straight month

BOJ minions get more data they don’t know what to do with:

• Japan’s Q2 GDP growth revised down; softer consumption to test BOJ policy

Dow, S&P, and Nasdaq closed higher with inflation data on the horizon

Tuesday, 10 September 2024

• Signs and portents for the U.S. economy:

• Oil settles near 3-year low on weak demand outlook
• Surge of imports to US continues as possible East Coast port strike looms

Fed minions trying to work out how to bail out failing banks, expected to deliver three rate cuts before end of 2024:

• Fed’s Barr to unveil Basel plan after industry pushback, regulatory delays
• Fed to cut rates by 25 basis points on Sept. 18, twice more in 2024: Reuters poll

Bigger trouble, stimulus developing in China:

• China’s exports up solidly but slowing imports dim trade outlook

Bigger stimulus, inflation developing in Japan:

• Japan premier hopeful Kato calls for stimulus, doubling household income

ECB minions getting excited to cut Eurozone interest rates:

• German inflation falls to the lowest level in more than three years

S&P 500 ends slightly higher but banks and energy weigh

• Why JPMorgan and Other Bank Stocks Tumbled Tuesday

Wednesday, 11 September 2024

• Signs and portents for the U.S. economy:

• US consumer prices rise moderately in August

• Core Inflation Comes In Hotter Than Expected, Collapsing Odds Of 50bps Rate Cut

Oil recovers after slide as US inventory drop, storm support

• Hurricane Francine disrupts Louisiana energy hubs, crop exports

Fed minions expected to deliver quarter point rate cut next week, one gets caught in questionable trading:

• Fed seen cutting policy rate by 25 bps next week
• Atlanta Fed’s Bostic violated trading rules, US central bank watchdog says

BOJ minions say they’ll hike interest rates if Japan’s inflation rises as they forecast, but will consider whether doing so will crash Japan’s stock market:

• BOJ policymaker signals readiness to raise rates if inflation on track

Bigger trouble developing in Eurozone:

• Number of German insolvencies climbs further in August

Wall Street closes up on tech boost; inflation data dents hopes for big Fed rate cut

• US banks extend slide as investors weigh sobering outlook from executives

Thursday, 12 September 2024

• Signs and portents for the U.S. economy:

• Oil rises 2% as storm batters US Gulf of Mexico production
• US 30-year fixed-rate mortgage falls to 6.20%

BOJ minions breathe sigh of relief as they don’t have to jeopardize Japan’s economy by hiking interest rates, one minion still wants to see 1% interest rate:

• Japan’s August wholesale inflation slows, takes pressure off BOJ
• Hawkish BOJ policymaker calls for rates to rise to at least 1%

ECB minions deliver expected Eurozone interest rate cut:

• ECB cuts interest rates as growth dwindles

• ECB Cuts Rates By 25bps (As Expected); Projects Worsening Stagflation
• VIEW ECB delivers second rate cut of the year

Wall Street indexes close up; data keeps smaller Fed rate cut in view

• Dow ends higher, S&P, Nasdaq extend string of wins as investors set sights on rate cuts

Friday, 13 September 2024

• Signs and portents for the U.S. economy:

• US locks in steep China tariff hikes, some industries warn of disruptions
• Oil eases on resuming US output after storm, rising rig count

Fed minions wondering how big of a rate cut to deliver:

• Fed seen nearly as likely to cut rates by 50 bps as 25 bps
• Strong case for 50 bp Fed cut, says former NY Fed chief Dudley

Bigger trouble developing in China:

• U.S. finalizes tariff hikes on Chinese goods, many to start September 27
• China to raise retirement age as workforce shrinks, aging population grows
• China’s August new lending rises less than expected, more policy steps expected

BOJ minions expected to try hiking rates again before end of 2024:

• BOJ to hike rates by year-end, say majority of analysts; no September change seen: Reuters poll

S&P soars to best week of 2024 as Wall Street gears up for anticipated interest rate cuts

• Just how much of an impact does Nvidia have on the S&P 500?
• Prospect of steeper Fed cuts boosts stocks, drives record gold prices

The CME Group’s FedWatch Tool anticipates the Fed will hold the Federal Funds Rate steady in its current target range of 5.25-5.50% until next week. On Wednesday, 18 September (2024-Q3), the Fed is expected to start a series of 0.25%-0.50% rate cuts that will occur at six-week intervals well into 2025.

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 bounced back up to +2.5% from the previous week’s forecast of +2.1% growth.

Looking ahead to why the Federal Reserve will begin a new series of rate cuts later this week, on Tuesday, 17 September 2024 we’ll show you some of the data the Fed is looking at as it considers whether the U.S. economy is falling into recession and on Wednesday, 18 September 2024, we’ll show you the negative jobs data that may explain why a half point rate cut has become more than a remote possibility during the past week.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of two Federal Reserve officials using a Ouija board to determine interest rate cut”