VIDEO: There were several takeaways from Nov FOMC rate decision. But the most important is the Fed is on a path to Neutral and recent developments don’t change that.
Please click below to view our Macro Minute (duration: 3:52).
Yesterday’s Nov FOMC rate decision was largely as expected with a -25bp cut. The key takeaway is the Fed continues to be dovish and this coupled with the positive seasonality, supports stocks into year-end:
- We had 4 general takeaways from the press conference:
– FOMC staying the course to “neutral”
– Fed not focused on long-term yields
– Fed not changing model for elections yet
– Fed Chair Powell intends to stay Chair
- Of these, the key is that the Fed is sticking with a path of a Neutral rate (3% or so vs 4.5% currently):
– per Powell “we’re on a path to a more neutral stance, and that’s very much what we’re on.” - Thus, even though inflation reports recently were slightly “hotter” than expected, the Fed is committed to cutting rates. And he even noted that the election has not changed the outlook or the path:
– per Powell “in the near term, the election will have no effects on our policy decisions.” - Interest rates fell during the press conference, both short-term and long-term rates. The rollover in rates reflects, in part, the Fed is not particularly concerned with the recent rise in long-term rates. He noted that this could be explained by the change in growth dynamics and fiscal policy and not a rise in inflation.
- This is what we have been noting. The Fed would likely “jawbone” rates lower as rising long-term yields is essentially a tightening of financial conditions. And the Fed does not want this as it offsets the cutting of short-term rates.
- Overall, this was a dovish meeting and reinforces the tailwinds for equities into year-end. The 4 key drivers, in our view:
– 3Q EPS resilient despite falling inflation
– Fed dovish and Fed cuts boost economy
– Election uncertainty = cash sidelined
– Valuations still reasonable - Moreover, since the Fed pivot in Nov of last year, equities generally responded positively post-FOMC rate decisions:
– 8 meetings since Nov 2023
– equities higher 5D and 10D later
– 75% of the time (win-ratio)
– median gain of +1.4% and +1.6%, respectively
Bottom line: Stay on target into year-end
Thus, we see positive supports for equities into year-end. As we noted earlier this week:
- the median gain post-election AND
- given no recession AND markets declined
- is 7%, implying S&P 500 6,300 or so
That said, we see more upside for other groups. This holds whether looking at 2016, or whether thinking of a dovish Fed. The drivers are:
- de-regulation
- drop in cost of capital for businesses
- general “animal spirits” given Republican White House and Senate
This favors the following groups:
- Small-caps: IWM 0.11% IJR 0.39%
- Cyclicals: XLF 0.94% KRE 0.14% XLI 1.07%
- Bitcoin: BTC MSTR -1.11% SMLR 1.49%
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Key incoming data November:
11/1 8:30 AM ET: Oct Non-Farm PayrollsTame11/1 9:45 AM ET: Oct F S&P Global Manufacturing PMITame11/1 10:00 AM ET: Oct ISM Manufacturing PMITame11/4 10:00 AM ET: Sep F Durable Goods OrdersTame- 11/5: US Presidential Election 2024
11/5 8:30 AM ET: Sep Trade BalanceTame11/5 9:45 AM ET: Oct F S&P Global Services PMITame11/5 10:00 AM ET: Oct ISM Services PMIMixed11/7 8:30 AM ET: 3Q P Non-Farm ProductivityTame11/7 8:30 AM ET: 3Q P Unit Labor CostsMixed11/7 9:00 AM ET: Sep F Manheim Used vehicle indexTame11/7 2:00 PM ET: Nov FOMC DecisionDovish- 11/8 10:00 AM ET: Nov P U. Mich. Sentiment and Inflation Expectation
- 11/12 6:00 AM ET: Oct Small Business Optimism Survey
- 11/12 11:00 AM ET: Oct NY Fed 1yr Inf Exp
- 11/13 8:30 AM ET: Oct CPI
- 11/14 8:30 AM ET: Oct PPI
- 11/15 8:30 AM ET: Oct Retail Sales Data
- 11/15 8:30 AM ET: Nov Empire Manufacturing Survey
- 11/18 10:00 AM ET: Nov NAHB Housing Market Index
- 11/18 4:00 PM ET: Sep Net TIC Flows
- 11/19 9:00 AM ET: Oct M Manheim Used vehicle index
- 11/21 8:30 AM ET: Nov Philly Fed Business Outlook
- 11/21 10:00 AM ET: Oct Existing Home Sales
- 11/22 9:45 AM ET: Nov P S&P Global Manufacturing PMI
- 11/22 9:45 AM ET: Nov P S&P Global Services PMI
- 11/22 10:00 AM ET: Nov F U. Mich. Sentiment and Inflation Expectation
- 11/25 8:30 AM ET: Oct Chicago Fed Nat Activity Index
- 11/25 10:30 AM ET: Nov Dallas Fed Manuf. Activity Survey
- 11/26 9:00 AM ET: Sep S&P CoreLogic CS home price
- 11/26 10:00 AM ET: Nov Conference Board Consumer Confidence
- 11/26 10:00 AM ET: Oct New Home Sales
- 11/26 2:00 PM ET: Nov FOMC Meeting Minutes
- 11/27 8:30 AM ET: Oct PCE Deflator
- 11/27 8:30 AM ET: 3Q S 2024 GDP
- 11/27 10:00 AM ET: Oct P Durable Goods Orders
Economic Data Performance Tracker 2024:
Economic Data Performance Tracker 2023:
