To The Moon

Fed’s Blindside Curve Ball.

In a “strange” turn of event, US stocks finished lower after the Fed voted to cut interest rates by -0.5%, opting for a more aggressive reduction than investors had been expecting just a week ago.

Although traders had anticipated a rate cut, they had been left guessing about the size of the move.

• A week ago, traders were fairly confident that the Fed would cut by the traditional -0.25%.

• That consensus vanished in recent days, with many expecting a larger cut, but there was still a large amount of uncertainty heading into the Fed’s decision.

All but one (Michelle Bowman) of the 12 Fed voters supported the cut, that brought the Fed funds rate to the newly revised range of between 4.75% & 5%.

Fed Dot Plot.

At the same time the FOMC confirmed interest cut, the Summary of Economic Projections (SEP) report was also released.

The dot plot that is part of the SEP document, have officials anticipate further cut/s to the Fed funds rate. (see below)

For remaining 2024:

• 9 of 19 Fed officials expect interest rates at about 4.4% by year end. This translates to a target range of 4.25% to 4.50%.

• This is only about half a point below where interest is, after Wed, 18 Sep 2024 interest cut.

• Implying Fed officials are expected to make modest, quarter-size (-0.25%) cuts in the last 2 FOMC meetings in 2024, namely November & December.

• 7 of 19 Fed officials expect just one more cut this year.

• 2 of 19 Fed officials expect none.

• Lastly 1 of 19 Fed official expect another -0.75% jumbo cut in 2024, suggesting another supersize reduction in either November or December.

FOMC Press Conference.

Apart from the interest cut announcement, the press conference that followed was equally important as it provided insight to the overall tone of US central bank.

Remarks by Fed Chair, Mr Powell:

• Interest cut was a “recalibration” for the central bank and did not commit to similar moves at each upcoming meeting.

• The central bank is not in a hurry to ease policy, according to its projections.

• The half point cut is a “sign of Fed’s commitment” to not fall behind in responding to the economy’s reality.

• Equally important, he does not see the risk of an economic downturn “elevated” following the super-sized cut.

• At the same time, he does not expect the era of cheap money to return.

• The Fed’s goal is to (a) keep inflation stable while simultaneously (b) ensuring jobless rates do not tick higher.

Post Announcement Reviews.

Despite a “generous” interest cut, post reviews have been mixed.

(1) Satisfied.

• BMO Wealth Mgmt, Chief investment officer, Yung-Yu Ma said, Wednesday’s rate cut is “a welcome development”. This is because “the primary problem in the economy is actually short-term interest rates being too high.

• The rate cut (first in 4 years) is directly solving the problem, actually.

(2) Unsatisfied.

• Senator Elizabeth Warren has taken to “X” to air her dissatisfaction with FOMC’s -0.5% interest cut.

• She said — this cut in interest rates is yet another acknowledgement that Powell waited too long to reduce rates.

• The Fed has finally changed course to follow its dual mandate on prices and jobs.

• Lower rates mean relief for consumers and aspiring homeowners. More rates cuts are needed.

US Market on Wed, 18 Sep 2024.

It was a “strange” day for the US stock market.

The S&P 500, Dow Jones and Nasdaq Composite rose after the Fed's announcement.

It then pared those gains and turned negative. (see above)

As of 4 p.m. ET:

• $DJIA(.DJI)$ : -0.25% (-103.08 to 41,503.10). Its worst daily point and percentage declines since 06 Sep 2024, after giving back its nearly 400-point advance seen in the immediate aftermath of the Fed decision.

• $S&P 500(.SPX)$ : -0.29% (-16.32 to 5,618.26). Snapped a 7-day winning streak.

• $NASDAQ(.IXIC)$ : -0.31% (-54.76 to 17,573.30).

Root Cause for Dip. US stocks were not rocketing ahead (at least not yet) after getting the -0.5% interest cut. This is because after 7 straight up days, a lot of good news was priced in.

The half-point moves paves the way for lower borrowing costs on everything from mortgages to credit cards.

Hypothesis.

$BlackRock(BLK)$ CIO of Global Fixed Income and Head of the BlackRock Global Allocation Investment Team, Rick Rieder touched on one possible theory.

The latest SEP report shows that the Fed plan to lower interest rates by

1. Two more 25 basis point rate cut in 2024.

2. Another 100 basis point cut in 2025.

That’s a lot, but it’s not what investors were pricing in prior to the meeting.

According to Rieder, investors thought the Fed would cut rates more, like what they would do during a recession.

However, the Fed seems to be aiming for a more gradual reduction to a neutral level.

While investors got their big rate cut now, the future rate cuts might not be as big as they hoped.

My viewpoints : (mine only)

I was “pleasantly” surprised to learn of the bigger interest cut quantum.

The loss in the market, I did not foresee.

Based on past observations, US market reaction might be a delay reaction.

If US pre-market indicators for Thu, 19 Sep 2024 is anything to go by, the anticipated rally should happen today. (see below)

Is Thursday the start of the much-coveted US market rally ?

Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks.

• Nvidia : Is there life after Stock Split ?

• Unleash AI's potentials, Buy NEE, DUK, XLU ?

• PLTR, SOFI & RKLB, a veteran's Long-Term Bet. Follow ?

• Do you think the -0.5% interest cut is enough to kickstart US market rally?

• Do you think US inflation will continue to dip, paving the way for more interest cut as per SEP report forecast?

If you find this post interesting, give it wings! ️ Repost and share the insights ?

Do consider “Follow me” and get firsthand read of my daily new post. Thank you.

@Daily_Discussion

@TigerPM

@TigerStars

@Tiger_SG

@TigerEvents