Stocks sank on Wednesday after Federal Reserve Chairman Jerome Powell cautioned investors that future cuts in interest rates would be predicated on “progress on inflation.” After treading water on Thursday, the stock market rallied Friday on tame inflation numbers (see below). We will remind Snapshot readers that the stock market is a minefield this time of year as volume tends to shrink and investors tend to push off capital gains by making holdings their winners until January.
Best wishes to all for a very Happy Holiday Season!
· The fed executed a hawkish 0.25% interest rate cut and revised its expectations of rate reductions in 2025 to two, down from four in September. This according to their “dot plot.” Up until this meeting, investors were conditioned to a cut in interest rates at the conclusion. In our opinion, the big takeaway from this meeting is that investors will most likely expect the Fed NOT to cut rates but rather to hold steady unless the data dictates otherwise.
· Notable quotes from Fed Chair Powell during the post-FOMC meeting press conference Wednesday –
o “We understand very well that prices went up by a great deal, and people really feel that, and it’s prices of food and transportation and heating your home and things like that. So there’s tremendous pain in that burst of inflation that was very global. Now we have inflation itself is way down – but people are still feeling high prices – and that is really what people are feeling.”
o “But as for additional cuts, we’re going to be looking for further progress on inflation as well as continued strength in the labor market. And as long as the economy and the labor market are solid, we can be cautious as we consider further cuts.”
· Sentiment/volatility will most likely remain until President-Elect Trump a) takes office and b) investors receive enough details regarding his economic agenda, to include tariffs and reducing the size of government. As we have stated repeatedly, the Trump Administration will be one that has a broader range of potential outcomes as compared to that of a traditional politician. Even though his agenda might ultimately prove successful it may come with growing pains as he bucks the system.
· Mortgage Rates according to the Federal Home Loan Mortgage Corporation (FreddieMac), “this week, mortgage rates crept up to a similar average at this time in 2023. For the most part, mortgage rates have moved between 6 and 7 percent over the last twelve months. Homebuyers are slowly digesting these higher rates and are gradually willing to move forward with buying a home, resulting in additional purchase activity.” (Sources, Federal Home Loan Mortgage Corporation, National Association of Realtors)
· Adding context to the current housing market was Stuart Miller, Executive Chairman and Co-Chief Executive Office of homebuilder Lennar who, within the release of their fourth quarter earnings noted that “in the course of our fourth quarter, the housing market that appeared to be improving as the Fed cut short-term interest rates, proved to be far more challenging as mortgage rates rose almost 100 basis point through the quarter.”
"It’s The Economy…”
· Wall Street responded favorably as, on Friday, the Fed released one of their favorite gauges of inflation. The PCE Chain Price Index rose 0.1% in November (2.4% y/y) following a rise of 0.2% during October. Excluding food and energy, the CORE PCE rose 0.1% during November (2.8% y/y), after rising 0.3% during October. (Source, Bureau of Economic Analysis)
· Housing Starts fell 1.8% or by 23,000 to a seasonally adjusted annualized rate (SAAR) of 1,289,000 during November, as compared to 1,312,000 in October (-14.6% y/y). According to Haver Analytics, “starts were 29.5% below the most recent peak of 1.828 million in April 2022.” Of note is the fact that according to the U.S. Census Bureau there must be approximately 350,000 housing starts per year to replace those lost to natural causes, man-induced causes or by the growing U.S. population. During November, Single-family housing starts rose 6.4% or 61,000 to 1,011,000 from 950,000 (-10.2% y/y). Meanwhile Multifamily housing starts slumped 23.2% to 278,000 in November (-27.6% y/y) from 362,000 during October. Building Permits, a key barometer of future starts, rose 6.1% or 86,000 to 1,505,000 in November from 1,419,000 (-0.2% y/y). (Source, U.S. Census Bureau)
Upcoming Economic Reports scheduled to be released this week include the following: on Monday, December Consumer Confidence; on Tuesday, November Orders for Durable Goods; November New Home Sales; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits; and on Friday, November Wholesale Inventories.
The Current Quarterly Earnings Season has wound down to a meaningless trickle.
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