Week Ahead on Wall Street: Takeoff in 3, 2, 1…

The Long-Awaited Cut Is Here

The Federal Reserve has remained patient (holding interest rates unchanged) and kept its eyes on the prize (getting inflation down) for over a year. Through every twist and turn, every employment and inflation report, the numerous market selloffs and rebounds, Fed officials have remained steadfast. All of that has led us to this moment: After one of the most aggressive hiking cycles, followed by one of the longest pauses on monetary policy changes in modern economic history, the Fed is finally ready to lower interest rates this week.

Even so, there’s some uncertainty, including just how big that cut will be. Really, it’s hard to recall the last time there was such doubt over what the monetary policy decision will actually end up being. As of midday Friday, market pricing indicated a 54% chance of a 25 basis point cut (the Fed’s standard increment of change) and a 46% chance of a 50 basis point cut (which is much less common).

Top of mind for investors will also be the final destination of rates, i.e. for how long and by how much the Fed will cut them. Helping influence how investors think about that question will be the Fed’s quarterly Summary of Economic Projections, which include future projections of growth, unemployment, inflation, and yes, interest rates. Relative to the Fed’s prior year-end projections, growth and unemployment have been higher while inflation has been slightly lower.

As a result, Fed officials could indicate more interest rate cuts than they did during the last release of projections, where the median official expected one cut in 2024 and four cuts in 2025.

Investors currently expect four or five cuts in 2024, which means that they expect at least one larger 50 basis point cut considering there are only three Fed meetings left in the year. Next year, they expect five or six more cuts. If these expectations are met remains to be seen.

Economic and Earnings Calendar

Monday

•   September Empire State Manufacturing Activity: The New York Fed’s survey of manufacturing executives in the region on business conditions and their outlook.

Tuesday

•   August Retail Sales: This measures spending at retail stores and is a key indicator of consumer demand.

•   September New York Services Activity: The New York Fed’s survey of manufacturing executives in the region on business conditions and their outlook.

•   August Industrial Production and Capacity Utilization: The industrial sector accounts for much of the cyclical swings in economic activity.

•   September NAHB Housing Market Index: This index tracks how homebuilders feel about the current and future state of the single-family housing market.

Wednesday

•   August Building Permits and Housing Starts: Construction data is a leading indicator of economic activity.

•   FOMC Interest Rate Decision: The Federal Reserve will announce any changes to monetary policy after the conclusion of its two-day FOMC meeting, in addition to providing commentary on the economy. It’s one of eight regularly scheduled meetings per year.

•   Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.

•   Earnings: General Mills (GIS)

Thursday

•   September Philadelphia Fed Manufacturing Activity: The Philadelphia Fed’s survey of manufacturing executives in the region on business conditions and their outlook.

•   August Leading Economic Index: This is an index composed of various economic indicators that have historically led changes in the broader economy.

•   August Existing Home Sales: Most home transactions in any given month tend to come from the existing market, and as a result set the tone for the broader housing market.

•   Weekly Jobless Claims: This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.

•   Earnings: Darden Restaurants (DRI), FactSet Research Systems (FDS), FedEx (FDX), Lennar (LEN)

Friday

•   Nothing notable on the calendar.

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