Weekly Market Mornings (September 22) U.S. Stocks Up After Fed’s Big Rate Cut

Last Week’s Reports

Economic Reports

Retail sales in the US edged up 0.1% month-over-month in August. It was following an upwardly revised 1.1% surge in July and beating forecasts of a 0.2% decline. This metric is signaling consumer spending remains relatively strong. 

The average rate on a 30-year fixed mortgage dropped to 6.09% on September 19th, reaching its lowest level since February 2023. This decline coincides with the Federal Reserve’s initiation of its rate-cutting cycle, which began with a larger-than-expected reduction of 50 basis points. In the same period last year, the rate on a 30-year mortgage was 7.19%. While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market. Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but rates will likely fall further, sparking more housing activity.

Housing starts in the United States soared by 9.6% from the previous month and above market expectations. It was rebounding from the near 7% plunge in the previous period.

The Initial Jobless Claims in the US dropped to 219K in the period ending September 14th, significantly below market expectations (a new 4-month low). Despite this decline, the claim count remained above the averages seen earlier this year, as the US labor market has softened. In the meantime, Continuing Jobless Claims fell to 1,829K in the previous week. 

The Philadelphia Fed Manufacturing Index in the US rose to 1.7 in September (above forecasts). The employment index rose and suggested increases in employment overall. Both price indexes moved higher and continue to indicate overall increases in prices. The firms continue to expect growth over the next six months, with expectations more widespread this month.

FOMC

On September 18 the FOMC decided to cut interest rates by 50 basis points (0.5%). This decision marks the first rate cut in four years, following a period of high rates aimed at controlling inflation. The rate cut is intended to stimulate economic growth by making borrowing cheaper for consumers and businesses. Lower interest rates can lead to increased spending and investment, which in turn can help boost economic activity

The impact of this rate cut will be felt across various sectors. For consumers, it means lower interest rates on mortgages, auto loans, and credit cards, making borrowing more affordable. For businesses, reduced borrowing costs can lead to increased investment and expansion efforts. However, savers might see lower returns on their savings accounts and fixed-income investments due to the reduced interest rates.

The Fed projects real GDP growth to be around 2.0% for 2024. Also, the unemployment rate is projected to be 4.4% at the end of the year. Meanwhile, the Personal Consumption Expenditures (PCE) inflation rate is expected to be 2.3% in 2024. 

Jerome Powell emphasized in his press conference last week that the rate cut was necessary to support economic growth amid signs of slowing momentum. The decision was influenced by a combination of factors, including global economic uncertainties, trade tensions, and a desire to ensure that inflation remains near the Fed’s 2% target.

Earning Reports

FedEx

FedEx was the worst performer on the S&P 500, down 15%. The parcel delivery company’s fiscal first-quarter results unexpectedly declined year over year late Thursday amid weak demand trends.

FedEx (FDX) reported an earnings per share (EPS) of $3.60 for Q1 2025. This was below the expectations of analysts, who had forecasted higher earnings. 

The company’s total revenue for the quarter was $21.6 billion, which also fell short of the anticipated $21.96 billion.

Factors contributing to this performance included a shift in customer demand from higher-margin services to lower-margin services, increased operating expenses, and one fewer operating day compared to the previous year.

CEO Raj Subramaniam emphasized the company’s efforts to manage costs, improve operational efficiency, and invest in technology and automation to drive long-term growth.

FedEx expects revenue to be in the range of $22.0 billion to $22.5 billion for the next quarter. Also, the company anticipates diluted EPS to be between $3.50 and $3.80.

Following the earnings report, FedEx’s stock dropped by 14% due to the disappointing financial results. 

Indices

Indices’ Weekly Performance:

The Dow Jones Industrial Average (DJI) and the S&P 500 both set all-time highs last week. The 30-member Dow added 1.62%, to cross 42,000 for the first time in history. The broad-based S&P 500 pumped and closed above 5,700, adding 1.36% on the week.

It was a delayed response to the Fed’s decision to cut interest rates on Wednesday by 50 basis points. The big rate cut initially pressured equities across the board as traders were still digesting the news and were trying to figure out what it meant for their positions.

Technically, SPX has passed the strong barrier of 5700. The next resistance area is 5825 which is the fibonacci extension zone.

Stocks

Stock Market Sector’s Weekly Performance:

Source: Finviz

Most sectors go big. Energy and Communication Services pack on the pounds, while Consumer Defensive and Real Estate trim down.

Energy expands 3%. This sector tracks crude oil prices higher and following large rate cuts and dip in U.S. oil supply.

Financials gained 2.4%. Money-center banks rise after Fed’s huge rate cut, and regional banks rally as deposit costs concerns are soothed.

Consumer Discretionary up 2.5%. Nike (NKE) jumped 6% as co veteran Elliott Hill took the helm as CEO.

Utilities surge 1.8%. Constellation Energy (CEG) hits record high on power supply deal with Microsoft for AI and cloud computing, to resurrect Three Mile Island nuclear plant. CEG notches 30% weekly gain. Sector scores record closing high this week.

Industrials up 2%. Though FedEx (FDX) biggest SPX loser, deflates 14%, after missed forecast as speedy delivery demand wanes.

Tech tacks on 1%. Intel (INTC) rises 9% in partnership to produce custom chips for Amazon.

Stock Market Weekly Performance:

Source: Finviz

Nike

Nike (NKE) recently announced a significant leadership change. John Donahoe, the current CEO, will retire on October 13, 2024. He will be succeeded by Elliott Hill, a long-time Nike veteran.

Following the announcement, Nike’s stock saw a significant increase (7%), reflecting trader’s optimism about Hill’s leadership and the company’s future direction.

The Nike broke the downward trendline and the static resistance of $85 at the same time.

Meta

Last week, Meta Platforms (Meta) shares reached a new all-time high. The parent company of Facebook and Instagram has been performing well recently. Meta increased by 7% last week and closed at $561.

The previous record close for Meta was $539.91, set on July 5.

Additionally, Meta’s market capitalization exceeded $1.4 trillion for the first time, making it the sixth U.S. company to achieve this milestone. The current market value of Meta stands at $1.414 trillion.

Year-to-date, Meta’s shares have appreciated by approximately 60%.

Commodity

Weekly Performance of Gold, Silver, WTI and Brent Oil:

Source: Finviz

Gold rose past $2,600 per ounce on Friday, hitting a new all-time high. This surge was triggered by interest rate cuts and increasing geopolitical tensions enhanced the appeal of the precious metal. 

Crude Oil prices rose for 3.42% last week, amid Middle East tensions heightened concerns about Lebanon’s border conflicts that could disrupt oil supplies. Meanwhile, reports indicated that U.S. refineries are planning their lightest maintenance in three years, potentially boosting oil demand in the coming months. 

This comes after the Federal Reserve’s larger-than-expected rate cut, which could stimulate economic activity and fuel consumption. However, China’s slowing refinery output and weak industrial demand weighed on the market. WTI crude oil marked the second straight week of gains.

Technically, as you can see below, the crude oil has been risen from the strong 3-year support.

Forex

Weekly Performance of Major Foreign Exchange Pairs:

USD/JPY: The annual inflation rate in Japan rose to 3.0% in August from 2.8% in the prior three months, pointing to the highest level since October 2023. Also, Electricity prices increased the most since March 1981.

GBP/USD: In the UK, the Bank of England decided on Thursday to keep the interest rate flat at 5%. The sterling rose to its highest level against the dollar in two and a half years.

DXY: The Federal Reserve kicked off its rate-cutting campaign after raising rates to a 23-year high and keeping them there for a few months. Fed Chair Powell announced that the US central bank has decided to cut rates by half a point and is looking to chop them by a further half-point cut by the end of 2024. Once markets realized the implications on the US currency, they moved to offload their dollar holdings.

Meanwhile, Fed Chair Powell indicated that the central bank is not in a hurry to ease policy and that half-percentage point cuts are not the “new pace”. The Bank of England held policy steady last week, while the People’s Bank of China unexpectedly kept key lending rates unchanged. The Bank of Japan also kept its policy rate unchanged and maintained its solid economic outlook.

Crypto

Crypto Market Weekly Performance:

Source: quantifycrypto

Bitcoin, the most popular cryptocurrency, was on track of a weekly gain of 4%.

Next Week’s Outlook

Economic Events 

In the United States, the key focus will be on PCE prices, personal income and spending reports, as well as speeches from several Federal Reserve officials, including Chair Jerome Powell.

Traders will also be monitoring the final reading of Q2 GDP growth, S&P Global PMI data, CB consumer confidence, durable goods orders, and both new and pending home sales. 

Earning Events 

Large cap company’s Earnings reports coming this week include Costco, Micron, AutoZone, Cintas and Paychex.