Fri, November 8, 2024 | 7:50AM ET

Key Nov FOMC takeaway is Fed remains dovish. Another support for a YE rally.

Name: FS Insight
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Tom Lee, CFA ^AC

Head of Research

Key Nov FOMC takeaway is Fed remains dovish. Another support for a YE rally.

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 IJR
Cyclicals: XLF KRE XLI
Bitcoin: BTC MSTR SMLR

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Key incoming data November:

~~11/1 8:30 AM ET: Oct Non-Farm Payrolls~~ Tame
~~11/1 9:45 AM ET: Oct F S&P Global Manufacturing PMI~~ Tame
~~11/1 10:00 AM ET: Oct ISM Manufacturing PMI~~ Tame
~~11/4 10:00 AM ET: Sep F Durable Goods Orders~~ Tame
11/5: US Presidential Election 2024
~~11/5 8:30 AM ET: Sep Trade Balance~~ Tame
~~11/5 9:45 AM ET: Oct F S&P Global Services PMI~~ Tame
~~11/5 10:00 AM ET: Oct ISM Services PMI~~ Mixed
~~11/7 8:30 AM ET: 3Q P Non-Farm Productivity~~ Tame
~~11/7 8:30 AM ET: 3Q P Unit Labor Costs~~ Mixed
~~11/7 9:00 AM ET: Sep F Manheim Used vehicle index~~ Tame
~~11/7 2:00 PM ET: Nov FOMC Decision~~ Dovish
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:

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