The Dividend Cafe - The Dividend Cafe Thursday - September 19, 2024

Episode Date: September 19, 2024

Market Reaction to Fed's 50 Basis Point Rate Cut In this episode of Dividend Cafe, dated Thursday, September 19th, Brian Szytel reviews the market's positive response to the Federal Reserve's 50 basis point interest rate cut. The Dow rose by over 500 points, and both the S&P and NASDAQ saw significant gains. Despite the rally in risk assets, the 10-year bond yield remained unchanged. Fed Chair Jerome Powell indicated that future rate cuts might not match this recent one as the Fed responds to evolving economic data. Employment data showed signs of softening, but jobless claims beat expectations. Housing numbers were weaker than expected, though prices increased slightly. Manufacturing showed modest improvement, and volatility for the day was lower. The episode concludes with a reminder to tune in for tomorrow's long-form edition and an invitation for viewer questions. 00:00 Introduction and Market Overview 00:08 Fed Rate Cut and Market Reaction 01:04 Employment and Labor Market Insights 01:29 Interest Rates and Economic Indicators 02:25 Housing and Manufacturing Data 02:57 Conclusion and Upcoming Content Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome to Dividend Cafe. This is Thursday, September the 19th. And Brian Seitel with you here as we get closer to the end of the week. And after yesterday's 50 basis point rate cut by the Fed, we got a big follow through in markets today with a nice rally, essentially across the board in risk assets. The Dow was up over 500 points. So we closed up 522. S&P was up back to all time highs, up about a percent, 1.7%. NASDAQ was up an incredible two and a half percent. So risk on bond land didn't budge. The 10-year stayed exactly where it was at 371. And the yield curve is now getting a little steeper for once, which makes sense. They're starting to lower that

short-term rate. So there you have it. The press conference following yesterday's meeting, Powell basically walked back some of the excitement about it. The press conference following yesterday's meeting, Powell basically walked back some of the excitement about it. He basically said, don't expect 50 basis points as an expectation going forward. When we have these meetings, this is where we're starting, and then we'll take data as it comes, which makes sense. And again, we're dealing with an employment labor market that is deteriorating in some ways. The job openings numbers have dramatically decreased back to more normal levels. And it's hard to say if that is going to continue into a more dangerous territory. And then you have unemployment that has risen now 80 basis

points from three and a half to 4.2, roughly percent. So those things are coming with the Fed starting to lower interest rates, but there isn't a free lunch there. They're doing that because there's risk baked into what's going on into these markets. But some of the economic news, we had initial jobless claims actually beat. We got a 219 number versus a 230 consensus. So again, labor is softening, but it isn't falling out of bed. And they're just taking interest rates from something overly restrictive to something more neutral. The other thing that they did talk about was that the neutral rate or the terminal rate of where they're going to get to is likely going to be

higher than it was pre-pandemic. And so it's not like they're planning on taking this back to zero. That's fine to say. Of course, we don't know what the future will hold, whether they'll have to do something more dramatic. But for now, again, all these things do matter. The markets are perceiving this as this is the soft landing that it's been looking for, and that's the moment that we're in. So you had a nice day there in markets. There was housing numbers out today that were a little weaker than expected, although prices were actually up a little bit, up 3% over the year, which is good. And then you had a Philly Fed manufacturing index, which was about in line.

It was slightly higher than expected, but it was back into expansion territory, which is really what we want to see in manufacturing. So there's some green shoots happening. And then volatility for the day was lower. So all that to say, a decent day overall in markets as we fall into this Thursday evening. And I will kind of keep it there for the evening. We'll be back with you tomorrow with the Dividend Cafe on the long-form edition before your weekend. And please reach out with questions. We'd love to get them.

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