"I have been a sentient being, a thinking animal, on this beautiful planet, and that in itself has been an enormous privilege and adventure.” ― Oliver Sacks

Good evening,

FOMC Day has come and gone, and the Federal Reserve has put an official end to one of the most aggressive hiking cycles in Fed history. Investors were nervously optimistic before the Federal Open Market Committee concluded its meeting on Wednesday, debating whether the Fed would decide on a cut of 25 bp or 50 bp. As implied by Fed Funds futures trading, there were supporters on both sides of the issue, but in the hours leading up to the rate announcement, there was a slight shift toward the larger cut. That turned out to be correct, with the FOMC opting to cut 50 bps, setting a target range of 4.75% - 5.00%. 

For Fundstrat Head of Research Tom Lee, the decision and Fed Chair Jerome Powell's post-meeting press conference were decidedly positive for markets. "Chair Powell mentioned 'recalibration' multiple times," he pointed out. "To me, this indicates that the Fed has shifted its focus to the other part of its dual mandate, keeping the job market strong. With inflation softening, it seems clear that the Fed wants to keep the economic expansion healthy."

Expanding on that, Lee explained, "This heightened focus on jobs should arguably act as an implicit 'put' on the equity market, as falling asset prices would threaten to weaken labor markets."

Also bolstering his intermediate-term and longer-term constructiveness is what he views as a still-healthy business cycle. Businesses became cautious about over-expanding in early 2022, when the Fed began signaling intentions to raise interest rates sharply. They have remained cautious ever since. "The private investment-to-GDP ratio sits at 25%, below the long-term average of 27%, and with the exception of the pandemic, no major recession has started since 1970 without this figure exceeding 28%," Lee pointed out. We see this illustrated in our Chart of the Week:

"There are signs of stress for the consumer," Lee conceded, but debt service levels remain at 10%, still below the 13% level that has historically preceded recessions. What's more, with the cost of debt through credit cards, auto loans, adjustable rate mortgages, etc., likely to decline in response to the Fed rate cuts, debt service ratios are arguably set to ease as well. 

"All of this is arguably most supportive for small-caps and cyclicals," he noted. Yet Lee warns clients to expect "noise" in trading activity in the near term, over the weeks to come. This is in large part because we are in the eight-week period before Election Day, which has historically been challenging for investors. That's something that has Head of Data Science Ken Xuan wary as well. "I think the remaining weeks before the election will be treacherous," he said during our weekly research huddle.

Head of Technical Strategy Mark Newton is somewhat in agreement. He acknowledged that late September, particularly in election years, has historically been "a tricky time for the equity markets." However, with stocks having notched all-time closing highs on Thursday, "the market clearly shifted to the upside, despite having dipped on Wednesday afternoon after the FOMC." To Newton, this might lead to "a FOMO type of catch-up period where investors are going to climb aboard. We could, in fact, rally into the middle part of October." 

However, "mid-October is when you're going to want to watch carefully," he warned. Furthermore, "if sentiment starts to get real giddy in the next month, I think that'll be your sell signal. Going forward, I think we're still in for an interesting time," he concluded. 

Elsewhere

The Bank of England left rates unchanged at 5%, declining to follow the Fed's decision to cut. The latest data showed the UK's headline inflation held steady at 2.2% in August. The BOE cut rates in August by 25 bp. The Bank of Japan also held rates steady, leaving the overnight call rate target at 0.25%. The BOJ indicated optimism regarding domestic consumption but stressed the need for continued caution.

The Port of New York/New Jersey is bracing for a major strike as the October 1 expiration date of the current International Longshoremen's Association contract approaches. Union members have authorized a strike if ongoing negotiations fail, and the resulting 85,000-strong work stoppage would shut down 36 ports along the East and Gulf coasts, including five of the 10 busiest ports in the U.S. Port executives have begun ramping down operations to avoid a pileup of shipping containers if and when the strike takes place.

Water levels for the Amazon river basin are at all-time lows, with some parts turning into dry riverbeds. Water levels have fallen amidst a second consecutive year of droughts in Brazil. 

Boeing put thousands of employees on furlough as it struggled to resolve the first labor strike since 2008. About 30,000 machinists walked off the job after voting down a labor agreement the aerospace giant had tentatively struck with leaders of the International Association of Machinists and Aerospace Workers.

Facebook banned several Russian media networks for "foreign interference activity." The company targeted Rossiya Segodnya, RT and other related entities in this latest action, which applies to its services around the world, not just in the U.S.

The CEO of MoviePass pleaded guilty to securities fraud, admitting to having misrepresented the profitability and continued viability of a $9.95 membership that gave subscribers unlimited access to movie theater tickets. Mitch Lowe admitted to having deceived investors in an effort to inflate the share price of its parent company, Helios and Matheson Analytics.

Meta's Instagram announced new efforts to protect young users, including settings that will restrict access to violent, sexually explicit, or self harm-related content, as well as content that markets cosmetic surgery. The company also plans to introduce age-verification ID requirements and an AI feature that seeks to identify underage users based on how they interact with content, as well as the accounts and content with which they engage – even if young users lie about their ages.

Amazon announced it was eliminating hybrid and remote-work options, ordering all employees to return to the office five days a week starting in 2025. The company noted that exceptions would be made for employees with "extenuating circumstances." Some observers suspect that the policy change is a roundabout way of reducing the company's workforce by giving some employees a reason to quit their jobs.

Google successfully challenged a EUR 1.49 billion (USD $1.66 billion) fine imposed for allegedly engaging in monopolistic behavior in the online-search marketplace. UK and US regulators have made similar assertions, with the FTC's court case over this issue having begun on September 9.

A study in the British medical journal Lancet forecasts that antibiotic-resistant bacterial illnesses could cause more than 39 million deaths worldwide by 2050. This, in turn, could lead to annual global GDP losses of between $1 trillion and $3.4 trillion by 2030. 

JPMorgan created a new position overseeing the wellbeing of junior bankers following concerns about the workload imposed on investment-banking analysts and associates. The move is widely seen as part of an industry-wide response to the death of a 35-year-old Bank of America associate in May after routinely pulling 100-hour work weeks.

The Biden administration reportedly agreed to allow Nippon Steel to resubmit its application for approval of the Japanese company's acquisition of U.S. Steel. The decision comes amidst bipartisan criticism of the proposed merger, with President Biden, former President Trump, and Vice President Harris all having cited national security concerns in opposing it. The steelworkers' union has also opposed the acquisition. 

And finally: Elon Musk's Neuralink startup obtained a "breakthrough device" designation from the Food and Drug Administration (FDA) for an experimental brain implant that could potential restore vision to the blind – even, as Musk hopes, "those who have lost both eyes and their optic [nerves.]" The Blindsight implant is in development and has not yet moved to human clinical trials.