Markets Absorb Fed Rate Cut

Markets received the first Fed cut in 4 years with glee.

The Fed announced a 50 basis point rate cut last week, which was somewhat surprising. In addition, the Fed projected two more rate cuts this year—one in November & one in December. They also project another 100 bps of rate cuts in 2024. Some fear that the Fed is behind the curve, which would support the projections of future rate cuts. One of the primary reasons for the pivot by the Fed would be a softening labor market, as evidenced by the Fed’s Labor Market Conditions Index, which has declined 5 of the last 9 months.

As we noted last week, producers are not passing price savings onto consumers.

Last week’s Retail Sales data showed certain areas, such as Restaurant and Bar sales have declined for two consecutive months. There also appears to be a shift in market leaders as flows into bonds and defensive equities has increased, while growth/momentum equities saw outflows. There will be a lot of Fed speak this week, which could make trading choppy.

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