In a landscape characterized by fluctuating market sentiments, US equity indexes experienced an upward trajectory amidst choppy trading conditions. As volatility surged ahead of the Federal Reserve's anticipated monetary policy announcements, traders remained on heightened alert. The S&P 500 index edged higher by 0.1%, reaching 5,640.2, while the Nasdaq Composite mirrored this modest gain, also climbing by 0.1% to settle at 17,644.2.
Likewise, the Dow Jones Industrial Average followed suit, increasing by 0.1% to a midday trading level of 41,645.49. The sectors experienced varied performances, with energy stocks leading the charge, reflecting resilience and investor confidence. In contrast, utilities faced a downturn, showcasing the broader market’s mixed responses to incoming economic indicators. Adding to the market's unease, the CBOE Volatility Index, known colloquially as the fear gauge, rose sharply by 5.2% to 18.52.
This spike underscores the prevailing uncertainty as investors brace for the Federal Open Market Committee (FOMC) statement and Summary of Economic Projections, due to be released at 2:00 PM ET. This announcement will precede a crucial press conference featuring Federal Reserve Chair Jerome Powell, scheduled for 2:30 PM ET.
The significance of this policy announcement is magnified by its timing, as it is the last one before the looming presidential elections on November 5. Intriguingly, data from the CME Group indicates a keen interest among interest-rate traders, with a current probability of 55% favoring a 50 basis-point rate cut, contrasting with a 45% chance of a smaller, 25 basis-point reduction.
This suggests that the Fed may be poised to implement its first rate cut in over a year, following a 13-month period of maintaining the status quo. A notable comment from Stifel highlights the potential implications of this shift, asserting that if a rate cut materializes, it will mark the central bank's first such action since March 2020. Market experts predict that the Fed will opt for a 25 basis point reduction while conveying a dovish outlook via the dot plot and Powell’s remarks during the press conference.
Macquarie’s analysis suggests, “If we are wrong, and the Fed cuts by 50bps, we expect that the 'dovish' implication will be offset by Powell’s guidance for a more gradual 25bps reduction in the final two FOMC meetings of the year.” Looking back at historical trends, Derek Holt, head of capital market economics at Scotiabank, remarked, “History is ambiguous toward the size of a first cut in an easing cycle, but when they’ve gone big out of the gates, it typically indicates that serious economic challenges are at play, reminiscent of the Great Financial Crisis or dot-com collapse.” In the bond market, a rise in most Treasury yields was observed, with the 10-year yield increasing by 3.7 basis points to reach 3.68%, while the two-year rate climbed 4.8 basis points to 3.64%. Currency markets reflected a mild depreciation of the US dollar, which fell 0.3% against the Japanese yen, positioning it at 141.90. Turning to the housing market, August saw a notable increase in housing starts, climbing 9.6% to a 1.356 million annual rate, surpassing Bloomberg’s expectations for a 1.32 million rate.
Building permits also showed an uptrend, rising 4.9% to a rate of 1.475 million in August, a substantial increase from the 1.41 million anticipated and a recovery from a previous drop. In corporate news, Wolfe Research has revised its stance on ResMed ($RMD) from peer-performing to underperforming, setting a price target of $180.
Following this announcement, ResMed saw a significant decline in shares, dropping by 5.7% and becoming the worst performer on the S&P 500. Meanwhile, crude oil prices, specifically West Texas Intermediate, dipped by 0.8%, now standing at $70.61 per barrel. In precious metals, gold prices increased by 0.3% to $2,600.50 per ounce, whereas silver witnessed a downturn by 0.7%, settling at $30.76 per ounce, highlighting the mixed responses across different asset classes as traders navigate the current economic landscape..