Stocks Closed Sharply Higher, One Day After Rate Cut, And Forecast For Future Cuts Stocks closed sharply higher across the board yesterday. They put in the kind of move they should have put in on Wednesday following the Fed's 50 basis point rate cut. Even though it came a day late, it was a smart move because stocks usually perform well when rates are lowered. And the move to kick things off with a 50 bps cut will only add to the Fed's soft landing efforts, which so far, have been successful. The 50 basis point move also makes sense since there is no meeting In October. So doubling the typical quarter point move to a half point, essentially makes up for the skipped month. And then they can continue their quarter point moves in November, December and January. In addition to the 50 bps cut, which puts the midpoint Fed Funds rate at 4.88% (4.9%), the Fed is also forecasting rates to come down to 4.4% by year's end, and then getting down to 3.4% by the end of next year. Pretty much what the market had been expecting. But it was nice to get that forecast confirmed. Fed Chair Jerome Powell, at his press conference on Wednesday, said what the market was hoping to hear – that "our economy is strong overall and has made significant progress toward our goals over the past two years." And that the move should be taken as "a sign of our commitment not to get behind." Additionally, he said, "I don't see anything in the economy right now that suggests that the likelihood, of a downturn, is elevated. I don't see that. You see growth at a solid rate, you see inflation coming down, and you see a labor market still at very solid levels." With the first rate cut out of the way, and the rate-cutting cycle having begun, the market will shift it's focus to next week's Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge. And then the week after that, the next Employment Situation report. In the meantime, we'll get plenty of other economic reports to analyze.
That includes yesterday's Weekly Jobless Claims which fell by -12,000 to 219K vs. the consensus for 230K.
The Philadelphia Fed Manufacturing Index came in at 1.7 vs. last month's -7.0 and views for 2.0. Existing Home Sales were at 3.860 million units (annualized) vs. last month's 3.960M and estimates for 3.900M. That puts the m/m change at -2.5% vs. last month's 1.5%. And the y/y change at -4.2% vs. last month's -2.2% pace. And the Leading Indicators report slipped -0.2% m/m vs. last month's -0.6% and expectations for -0.3%. Not much in the way of economic reports today. But the market will go through Quadruple Witching, which means index futures, stock futures, index options, and stock options all expire. So there could be some extra volatility today. With one more day to go, stocks are poised to put in another up week. If so, that will make it 2 up weeks in a row for all of the major indexes (Dow, S&P 500, Nasdaq, small-cap Russell 2000 and mid-cap S&P 400). That could also mean new, all-time, weekly high closes for the Dow, S&P 500 and S&P 400. And with the beginning of Q4 just one more week away (Q4 is the best quarter for stocks), I'm expecting a lot more upside to go for the rest of the year. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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