Stocks advanced as the Federal Reserve lowered interest rates by 0.50%. For the week, the S&P 500 was +1.4%, the Dow was +1.7%, and the NASDAQ was +1.4%. Within the S&P 500 Index, the Energy, Communication Services, and Financial sectors led the market. The Consumer Staples, Real Estate, and Health Care sectors lagged. The 10-year U.S. Treasury note yield increased to 3.734% at Friday’s close versus 3.659% the previous week.
With the Federal Reserve confident that inflation is on a path toward a 2.0% annual rate and looking to keep stability in the labor market, the Federal Open Market Committee (FOMC) introduced its initial easing of 0.50% to take the fed funds target rate to a 4.75% to 5.00% range. CME fed funds futures for November imply a near even probability between an additional 0.25% and 0.50% reduction in the fed funds target rate.
We are a few weeks away from the start of the third quarter earnings reporting period. Third quarter earnings growth is currently forecast at 4.9% year-over-year with revenue growth of 4.8%. Full-year 2024 earnings for the S&P 500 Index are expected to grow by 10.4% with revenue growth of 5.0%.
In our Dissecting Headlines section, we look at the updates to the FOMC’s Summary of Economic Projections.
Financial Market Update
Dissecting Headlines: Fed Vision
The FOMC’s latest Summary of Economic Projections was released at its policy meeting last week. The committee members’ views on the economy are what underpin their decisions on monetary policy. We thought it would be helpful to look at where the economic data is currently relative to the FOMC’s outlook for the remainder of 2024 and into 2025 to better understand what could unfold over the next few months.
Gross Domestic Product (GDP): The committee expects the economy, as measured by GDP, to grow 2.0% in 2024 and 2.0% in 2025. This positive economic growth implies the likely avoidance of a recession and the Fed achieving a soft landing scenario for the current economic cycle.
Unemployment: As of August, the unemployment rate was 4.2%. The FOMC projects the unemployment rate rising to 4.4% by the end of 2024 and remaining at that level in 2025 before declining modestly. The higher unemployment represents the slack in the labor market required to keep wage inflation in check. Wage inflation had been one of the stickiest factors in bringing down overall core inflation.
Inflation: The FOMC measures inflation via the Personal Consumption Expenditures (PCE) Price Index. July’s PCE Prices were +2.5% year-over-year and core PCE Prices, which exclude food and energy prices, were +2.6%. The FOMC’s projections show PCE Prices declining to 2.3% by year-end and core PCE Prices remaining at 2.6%. For 2025, the FOMC sees PCE prices at 2.1% and core PCE prices at 2.2%.
Interest Rates: Based on these economic projections, the FOMC sees the fed funds rate target for year-end 2024 at 4.25% to 4.50%, a full one percent decrease from the level we have seen for most of this year. For 2025, the FOMC forecasts further easing in monetary policy to bring the fed funds rate to a 3.25% to 3.50% range. It currently expects the easing cycle to end some time in 2026 with the fed funds target rate range falling to 2.75% to 3.00%.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.
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Start of the Cycle
Stocks advanced as the Federal Reserve lowered interest rates by 0.50%. For the week, the S&P 500 was +1.4%, the Dow was +1.7%, and the NASDAQ was +1.4%. Within the S&P 500 Index, the Energy, Communication Services, and Financial sectors led the market. The Consumer Staples, Real Estate, and Health Care sectors lagged. The 10-year U.S. Treasury note yield increased to 3.734% at Friday’s close versus 3.659% the previous week.
With the Federal Reserve confident that inflation is on a path toward a 2.0% annual rate and looking to keep stability in the labor market, the Federal Open Market Committee (FOMC) introduced its initial easing of 0.50% to take the fed funds target rate to a 4.75% to 5.00% range. CME fed funds futures for November imply a near even probability between an additional 0.25% and 0.50% reduction in the fed funds target rate.
We are a few weeks away from the start of the third quarter earnings reporting period. Third quarter earnings growth is currently forecast at 4.9% year-over-year with revenue growth of 4.8%. Full-year 2024 earnings for the S&P 500 Index are expected to grow by 10.4% with revenue growth of 5.0%.
In our Dissecting Headlines section, we look at the updates to the FOMC’s Summary of Economic Projections.
Financial Market Update
Dissecting Headlines: Fed Vision
The FOMC’s latest Summary of Economic Projections was released at its policy meeting last week. The committee members’ views on the economy are what underpin their decisions on monetary policy. We thought it would be helpful to look at where the economic data is currently relative to the FOMC’s outlook for the remainder of 2024 and into 2025 to better understand what could unfold over the next few months.
Gross Domestic Product (GDP): The committee expects the economy, as measured by GDP, to grow 2.0% in 2024 and 2.0% in 2025. This positive economic growth implies the likely avoidance of a recession and the Fed achieving a soft landing scenario for the current economic cycle.
Unemployment: As of August, the unemployment rate was 4.2%. The FOMC projects the unemployment rate rising to 4.4% by the end of 2024 and remaining at that level in 2025 before declining modestly. The higher unemployment represents the slack in the labor market required to keep wage inflation in check. Wage inflation had been one of the stickiest factors in bringing down overall core inflation.
Inflation: The FOMC measures inflation via the Personal Consumption Expenditures (PCE) Price Index. July’s PCE Prices were +2.5% year-over-year and core PCE Prices, which exclude food and energy prices, were +2.6%. The FOMC’s projections show PCE Prices declining to 2.3% by year-end and core PCE Prices remaining at 2.6%. For 2025, the FOMC sees PCE prices at 2.1% and core PCE prices at 2.2%.
Interest Rates: Based on these economic projections, the FOMC sees the fed funds rate target for year-end 2024 at 4.25% to 4.50%, a full one percent decrease from the level we have seen for most of this year. For 2025, the FOMC forecasts further easing in monetary policy to bring the fed funds rate to a 3.25% to 3.50% range. It currently expects the easing cycle to end some time in 2026 with the fed funds target rate range falling to 2.75% to 3.00%.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.