The third quarter ended with a flourish as a late rally Monday sent the S&P 500 to a record close. Everything followed suit in that rally which, interestingly, followed remarks by Fed Chair Powell that indicated the market may not get the full scope of rate cuts in 2024 that it has been expecting.
The Fed Chair opined that, if the economy evolves as expected, there will be two rate cuts of 25 basis points each before the end of the year. The market had been pricing in 75-basis points worth of cuts before the end of the year.
The bottom-line the market clung to, though, is that the Fed will be cutting rates further to keep the economy on a growth track. That ingrained belief fueled a buy-the-dip charge that enabled the major indices to close at, or near, their best levels of the day on Monday.
Things are a little more subdued in the early going today. Currently, the S&P 500 futures are down four points and are trading 0.1% below fair value, the Nasdaq 100 futures are up nine points and are trading in-line with fair value, and the Dow Jones Industrial Average futures are down 119 points and are trading 0.4% below fair value.
Market participants have woken up to the news that dockworkers at East Coast and Gulf Coast ports are on strike as they fight, among other things, for a larger pay increase. The dockworkers strike has been advertised for weeks as a distinct possibility, so the initial response to it has been muted.
A lot of import demand, particularly from retailers, was reportedly pulled forward, cushioning some of the initial blow of the strike action. An expectation that it will ultimately get settled before long is also helping sentiment, yet the longer it carries on, the greater the concern will be that supply chain bottlenecks will slow growth, raise prices, and interfere with policy settings.
It's another bogey out there along with Israel moving ground troops into southern Lebanon — worrisome developments on the surface but neither meeting worst-case scenario thresholds. Accordingly, a market underwritten by the restoration of the Fed put, and economic data that continue to support the soft landing/no landing outlook, is still finding a way to trade around these negative developments.
The economic data in focus today will be the September ISM Manufacturing PMI (Briefing.com consensus 47.7%; prior 47.2%) and the August JOLTS – Job Openings Report (prior 7.673M). Both will be released at 10:00 a.m. ET, and both will shed some added light on labor market conditions. There is an employment index in the ISM report that will be closely watched.
Something else that will be closely watched is Dow component Nike's (NKE) earnings report after the close and the vice-presidential debate at 9:00 p.m. ET.
In the meantime, there will also be eyes on Apple (AAPL) and Boeing (BA). The former is trading 1.2% lower in pre-market action after Barclays made some cautious remarks about iPhone 16 demand, and the latter is also down 1.2% on a Bloomberg report that the company, dealing with a lengthening machinists strike, is considering a $10 billion stock offering.
Today marks the start of the fourth quarter. It has a tough act to follow with the market-cap weighted S&P 500 having gained 5.5% in the third quarter and the equal-weighted S&P 500 having gained 9.1% to go along with a 2.6% gain for the Nasdaq Composite, a 6.6% gain for the S&P Midcap 400, an 8.2% gain for the Dow Jones Industrial Average, and an 8.9% gain for the Russell 2000.
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Originally Posted October 1, 2024 – A tough act to follow
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