Stocks End Lower, FOMC Minutes Forecast Rate Cuts, But Uncertainty Over When Remains  Image: Shutterstock Stocks closed lower yesterday with all of the indexes in the red. The small-cap Russell 2000, and the mid-cap S&P 400 led the decliners giving up -2.66% and -2.28% respectively, followed by the Nasdaq which was off by -1.18%. Yesterday's FOMC minutes showed that the Fed indeed expects rates to come down this year (by three -25 basis point cuts), but the outlook surrounding when revealed a good deal of uncertainty. And they appear to remain data dependent with the minutes saying: "In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves." They also gave a likely longer than expected timeline for rates to get back to 2%, forecasting a 3-year timeframe. Combine that, with the "unusually elevated degree of uncertainty," and the idea that several members suggested it might be necessary to keep rates at these higher levels for longer, while others remained open to additional hikes if conditions warrant, weighed on stocks. It's clear the Fed is definitely leaning towards planned cuts this year. And Fed Funds traders are expecting even more (up to six -25 basis points cuts). But the minutes did not provide the level of certainty the market was hoping for. Nonetheless, the Fed's forecast for 3 rate cuts this year remains, even though traders are expecting twice that. And that's the real takeaway; rates appear to be headed lower this year, but the question of when and by how much remains. In other news, yesterday's MBA Mortgage Applications fell by -10.7% w/w, with purchases down by -7.6% and refi's down by -18.1%. The ISM Manufacturing Index rose to 47.4 vs. last month's 46.7 and views for 47.2. And the Job Openings and Labor Turnover Survey report (or JOLTS for short), showed there were 8.790 million job openings vs. last month's upwardly revised 8.852M and the consensus for 8.750M. But the jobs report everybody is really waiting for is Friday's always important Employment Situation report. In the meantime, today we'll get Weekly Jobless Claims, the Challenger Job-Cut report, and the ADP Employment report, which is often looked at as a precursor to what the official employment situation report might say. In addition, we'll also get the PMI Composite report.
Pullbacks are never fun when they're happening. But I suspect many are glad to see it. It's giving many an opportunity to pull profits now that the new year is here (you can be sure many waited until the new year began so as to push their tax obligation into 2025 rather than 2024). And the lower prices will give others a chance to build positions at better entries rather than have to chase it higher. Because the outlook for another solid year remains. Add in the favorable stats of the 4-year Presidential cycle which shows that year 4 (that's 2024), is the second-best year of all four years (the best year of the cycle is year 3, and that was 2023), and the odds increase even more.
See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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