Here's the Deal - September 21, 2024

Economy: In Slowdown

Market Cycle: Bullish

_{Week 38 of 52 for 2024: 73% of the way through 2024}

Weekly Note:

This big news this week is of course that the Fed opted to go with an initial interest rate cut of 50bp. Bringing the Fed Fund Rate down to 4.75-5% from 5.25-5.5%. Coming into the week, the concern was that a larger cut than the more standard 25bp would spook the markets by possibly signifying that The Fed was behind the curve. However, this was not the case as the beginning of the week brought about a major push for the larger double cut of 50bp.

One way to change people's perception is by framing a fear or concern in a way that makes it seem more reasonable or manageable. This began on Sunday when more voices started advocating for a 50 basis point (bp) interest rate cut, and by Monday morning, the flood gates began to open as more economists and consistently accurate traders jumped on board. Even the Democrats in the Senate got involved by setting a terrible precedent by sending a formal letter to the Fed demanding a 75bp cut. I say terrible precedant because if you ever watch the bi-annual testimony of the Fed Chair to Congress as I do, then you realize how incredibly stupid and uninformed politicians on both sides are when it comes to the economy.

All of this activity helped push the probabilities of a double cut to as high as 67% going into the announcement, up from ~35% at the end of last week. Meaning, that as the double cut stopped being a surprise, it allowed sentiment to become more open to the idea and thus stop the freak out from happening in the first place.

However, the Fed wasn’t the only important thing we learned this week as existing home sales came in lower than expected last month. However, it now appears that the severe recession in the residential real estate sector looks as though it is bottoming and coming to an end. Even though mortgage rates have been trending lower since last October, most people are unaware unless they are actively looking to purchase or refi. Afterall, what kind of a nut tracks that stuff on a regular basis? So it is typical to see existing home sales begin to rise after the initial rate cut form The Fed as that is what seems to grab people’s attention.

It hasn’t been all bad for the residential real estate sector as home builders have been crushing it since mid-2022, due to the fact that they are efficient sellers that have more leeway helping perspective home buyers with mortgage rates than the resale market. Lennar, the biggest homebuilder in the country, beat across the board when they reported on Thursday afternoon.

Hint: This is not something you see in the middle of a recession.

While there was some good news to celebrate this week on the economic front, it is still important to remember that the economy is in the Slowdown phase. This was given more credence through FedEx’s lackluster earning report from last quarter and lowered guidance. Should the deteriorating performance of more transportation companies happen, it would be more evidence of a deteriorating economy as FedEx is a well managed and a clear leader in the industry.

Remember, if things seem confusing as markets continue showing strength while economic news is all over the map, it’s just typical Slowdown behavior.

The coming week will bring more information to the forefront as we will learn the results of the Fed’s preferred measure of inflation, PCE, from last month, as well as the final market moving update of the GDP growth rate for Q2 2024.

Top Economic Stories of the Week:

***More articles will be posted in the comment section to ensure the initial email is not too big to deliver to your inbox.

Most Important Data Drops from the Past Week:

This Week in Markets

One thing is now certain, stocks are not concerned that this weeks double cut in interest rates are a sign of trouble ahead. After beginning the week higher, the indices then prepared for the Fed’s decision on Wednesday. Stocks initially moved higher on the announcement and then retreated into the close on Wednesday afternoon.

But alas, that turned out to be a huge bear trap as the indices gapped up massively on Thursday morning (SPY 1.726%, DIA 1.369%, QQQ 2.373%, IWM 2.379%) once traders had an opportunity to sort through and digest the Fed’s decision.

As the closing bell rang on Friday, both the S&P500 and Dow Jones Industrials once again ended the week at their highest weekly closes ever. Not even the historically worst performing month of the year has been able to keep stocks down.

A big test is coming in the next couple of weeks as the end of September is when most of the weakness historically takes place. This coincides with the current quarters Triple Witching which was Friday, Sept 20th. (Triple witching refers to stock options, index options, and index futures contracts all expiring on the same day.) Historically speaking, this coming week is one of the weakest of the year, so don’t be surprised if it’s a rough one for markets.

So while there is more than likely some additional chop and volatility in the near term, it is much more probable that this will turn out to be your best buying opportunities through the end of the year.

The Week Ahead

Economic Data:

News stories to keep an eye on.

The possible port strike is turning into a B f’n D as the October 1st deadline approaches. This isn’t one to sleep on as it would affect all of us, especially if it is a long and sustained strike.

The International Longshoremen’s Association, which is the largest maritime workers union in North America, the US east coast strike “looks certain.” As a result, shippers have begun to eye Canadian ports.

The Biden Administration announced this week that they will not block the strike, and more industry insiders are calling out the warning of the impact everyday.

“Some ocean carriers have begun imposing a $1500 fee for containers bound for the US East Coast, effective October 11th.” according to Ryan Peterson, founder and CEO of the supply chain and transportation company Flexport. He also stated that “If the International Longshoremen’s Association (ILA) goes on strike, tens of thousands of businesses could miss the key Black Friday, Cyber Monday peak sales period.” The result of which would be significantly detrimental to the US economy as it would further stifle growth.

According to Senior Maritime Reporter with Lloyd’s List, Greg Miller, the work stoppage at the ports “would be cataclysmic.” So much so that he opened up the article below for free:

As we know, a lot of times these things get worked out right as the clock is running out. However, it’s never a bad idea to prepare for the worst while hoping for the best.

Earnings to watch:

WTF of the Week

The Truth about the BS you’re hearing about.

Claim: The Fed dropped rates by 50bp was political and done to hurt Trump.

Seriously, think about this one. Do you know anyone, even one person, that was going to vote for Trump and changed their mind on Wednesday afternoon to voting for Kamala because the Fed cut 50bp??

It takes about a year or so for a change in interest rates to make it’s way through the economy, so the affects of the decision are going to be felt in the next administration anyway. Plus let’s be honest, the average voter has no idea that anything significant happened on Wednesday and how it will affect their life in the next few years. Not everyone is as smart as you and reads “Here’s the Deal” every weekend.

Anyhoo, here is a great article that came out last Sunday on not only why a cut was needed here, but why it should have been .50 instead of .25. As someone that was pro .25 here and a .5 in either Nor or Dec, the call was close enough here not to be too concerned with the decision.

The current available data makes a strong case for .5 here as well, so six in one and half dozen in the other for me.

By the time we find out if this was the correct course of action, we’ll already be arguing about the mid-terms anyway.

Quote of the Week

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