All Eyes On This Afternoon's FOMC Announcement Stocks closed lower across the board yesterday ahead of this afternoon's FOMC Announcement. Going into the announcement, Fed Funds traders, via the CME's FedWatch tool, have a 95.4% likelihood that the Fed will cut rates by another 25 basis points, bringing the Fed Funds midpoint down to 4.38%, which is what the Fed had predicted just a few shorts months ago. Assuming that's the case, what investors will be focused on is what the Fed's outlook is for rates next year. The Fed, after forecasting rates would get down to 4.4% this year, predicted that rates would fall to 3.4% next year. But with slowing/stalling progress on inflation, and a few better-than-expected employment reports, some are beginning to wonder if the Fed will keep cutting in the new year as fast as they've been, i.e., will they keep the pace going of cutting at each meeting (ever since the rate cutting cycle began), or will they pause in between? I assume the Fed will insist they'll remain data dependent, which is what their mantra has been this whole time. If that's so, the focus will then turn to Friday's Personal Consumption Expenditures (PCE) index (which is the Fed's preferred inflation gauge). And then 2 weeks later, the next Employment Situation report on January 3rd. Both of those reports are important because they speak to Fed Chair Jerome Powell's comments when he said he was "feeling good" about the economy, and that they've made "significant progress on inflation," while maintaining a "strong, but not overheated" jobs market. Reports that underscore those sentiments will likely be cheered, whereas reports that contradict that narrative will not. In other news, yesterday's Retail Sales report was up 0.7% m/m vs. last month's 0.5% and views for the same. Ex-Vehicles it was up 0.2% vs. last month's 0.2% and estimates for 0.4%. Ex-Vehicles & Gas it was up 0.2% as well vs. last month's 0.2% and expectations for 0.4%. Industrial Production slipped -0.1% m/m vs. last month's -0.4% and the consensus for 0.3%. Manufacturing Output was up 0.2% vs. last month's -0.7% and views for 0.5%. The Capacity Utilization Rate came in at 76.8% vs. last month's 77.0% and estimates for 77.3%. Business Inventories rose 0.1% vs. last month's 0.0% and expectations for 0.2%. Manufacturing Inventories were off -0.1% vs. last month's -0.3%. Retail Inventories were up 0.2% vs. last month's 0.7%. And Wholesale Inventories were up 0.2% vs. last month's -0.2%. And the Housing Market Index came in at 46, same as last month, but under the consensus for 47. Today we'll get MBA Mortgage Applications, the Housing Starts and Permits report, and the Atlanta Fed Business Inflation Expectations. But this afternoon's FOMC Announcement at 2:00 PM ET, followed by the Fed Chair Press Conference at 2:30, will be the main event(s). With 3 more days to go, the Nasdaq is still up for the week. That would make it 5 up weeks in a row if they finished that way. The other indexes, however, have some ground to make up in order to finish in the green. Nonetheless, it's been another spectacular year so far for all the indexes. And with Q4 being the best quarter of the year, the market could finish the year on an even stronger note. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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