Friday, October 18, 2024
In pre-market trading this morning, we find ourselves in some kind of strange holding pattern. Investors are feeling like the ceiling is just above them right now, with the Dow still hitting new all-time closing highs and the S&P 500 not far behind. These two indexes and the Nasdaq are both on track for their sixth straight week of gains at today’s close.
Currently, the Dow is -51 points, the S&P is +15 points, and the Nasdaq is +120 points. There are some influential earnings and economic reports coming, but don’t expect anything to upset the balance of market sentiment today. Bond yields are also fairly stagnant, with the 10-year note at +4.087% and the 2-year note at +3.965%.
The number of housing starts and building permits are mixed.
Major housing starts in September were slightly higher than expected. The seasonally adjusted annual rate of 1,354,000 units was slightly higher than the expected 1,350,000 units, and slightly down from last month’s revised figure of 1,361,000 units. Although still fairly low by historical standards, these numbers represent a near-term high point for new housing starts.
The number of building permits, an indicator of future construction starts, was lower than expected. The seasonally adjusted annualized number of units was 1,428,000, lower than the 1,450,000 expected and also short of August’s slightly revised downward estimate of 1,470,000. The rise in mortgage rates again last month was unexpected given the Federal Reserve’s interest rate cuts, so permit holders were a little hesitant.
According to CNBC’s Diana Orrick, single-family home starts are on the rise again, up 2.7% month-over-month and 5.5% year-over-year. The multifamily construction industry, which has been leading the residential construction market for some time, is now facing an oversupply problem. However, for single-family homes, permits seem to be a little weaker. Much of this static factor can be removed through more empirical Fed policy.
Will the Fed be forced to halt rate cuts?
At this point, there is some doubt as to whether the Fed will continue to lower interest rates by another 50 basis points (bps) through the end of the year. Robust economic indicators such as retail sales seem to suggest that deep interest rate cuts are not necessary for the economy to perform well, but the Fed is currently indifferent about the future of the labor market.
This is expected to be known ahead of the Fed’s next meeting, with the October employment report to be released on Friday, November 1st. Another +254,000 in headline new jobs would make it more likely that the Fed will completely cancel its promised 25bps rate cut next week, or close to it. Consider the Nov. 7 rate cut decisive if monthly employment totals return to the more anemic short-term levels of the past few months.
(Note: This article has been corrected from a previously published version that incorrectly assumed that the jobs report would not be released until November 8, after the next Fed meeting. That’s a big difference.)
Even if employment numbers were to rise again, this wouldn’t exactly be a “Chicken Little” moment. And even if the Fed were to stop cutting rates for a while, it would still be in the +4.50-4.75% range, which isn’t exactly giving away free money. Although the Fed does not really want to change its policy, there seems to be a growing view that the Fed will leave interest rates unchanged in December and may not cut rates further. to be continued…
The Fed doesn’t really want to change course. However, there appears to be widespread belief that the Fed may choose to hold rates unchanged at its December meeting (after cutting rates in November) and may not cut rates further until sometime in 2025. to be continued…
Procter & Gamble mixed in fiscal first quarter
Housewares giant Procter & Gamble PG this morning reported better-than-expected fiscal first-quarter earnings of $1.93 per share, beating expectations by 3 cents. However, revenue for the quarter was $21.74 billion, lower than the $21.93 billion that analysts had expected. It has been pointed out that the slump in sales in Greater China (not Hong Kong) is the cause. The stock price is down -1%. P&G stock has increased +15% since the beginning of the year.
Check out the latest Zacks Earnings Calendar here.
Amex Beat and Meets in Q3
American Express AXP also beat its bottom line this morning, with third-quarter earnings of $3.49 per share, well above the $3.27 per share that analysts had expected. On the revenue front, AmEx nearly met expectations at $16.64 billion. Full-year earnings guidance has been significantly raised to a range of $13.75 to $14.05 per share. Stocks are selling a little on this news. Amex has grown +53% since the beginning of the year.
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