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Dow Jones set to consolidate record as stocks rise ahead of Fed decision

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Dow Jones set to consolidate record as stocks rise ahead of Fed decision

Stocks rose in early trading Tuesday, with technology stocks leading the advance as investors weighed fresh retail sales data ahead of a crucial Federal Reserve meeting on an interest rate cut.

The Dow Jones Industrial Average (DJI) rose about 0.2%, after hitting a record closing high for the flagship index. The S&P 500 (GSPC) gained about 0.4%, while the tech-heavy Nasdaq Composite (IXIC) gained 0.7%.

Stock markets are bracing for gains as the odds of a 0.5% rate cut from the Fed rise, just a day before officials release their policy decision. The central bank’s two-day meeting, which begins Tuesday, is expected to result in the first rate easing since early 2020.

Learn more: Fed forecast for 2024: What experts say about the possibility of a rate cut

Investors are scrutinizing data showing that retail sales beat Wall Street estimates in August, with a focus on signs of slowing consumer spending. The data is the latest evidence that could influence the Fed’s decision to opt for a substantial rate cut rather than a quarter-point cut.

For now, the debate over the path of rates is focused on whether a bigger cut could cause panic in markets. At the same time, some on Wall Street suggest that a more modest cut could also disappoint and raise concerns.

On Tuesday, traders were pricing in a 50 basis point interest rate cut to 65%, down from 62% a day ago. The odds of a 25 basis point cut were 35%, according to the CME’s FedWatch tool.

Meanwhile, Intel (INTC) shares surged after its foundry landed Amazon (AMZN) as a multibillion-dollar customer for AI chips. Microsoft’s (MSFT) new plan to buy back up to $60 billion in stock and a 10% dividend hike also helped revive sentiment in struggling tech stocks.

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Tuesday, September 17, 2024 at 7:00 AM PDT

Homebuilder confidence improves in September ahead of expected rate cut

Homebuilders are feeling more confident about the housing market as mortgage rates sit at their lowest level since February 2023.

The National Association of Home Builders (NAHB)/Wells Fargo housing market index rose two points to 41 in September from the previous month, ending a streak of four consecutive monthly declines.

The September figure is in line with economists’ estimates of 41, according to Bloomberg data.

“Thanks to lower interest rates, builders now have a positive outlook on future new home sales for the first time since May 2024,” NAHB President Carl Harris, a custom home builder in Wichita, Kansas, wrote in a news release.

Mortgage rates have fallen in recent months, hitting their lowest level in more than a year, as investors anticipate rate cuts from the Fed this month. The central bank will make its next monetary policy decision on Wednesday.

Lower mortgage rates have benefited builders, who have cut back on their concessions. The survey found that 32% of builders cut home prices to boost sales in September, down from 33% in August, and the average price reduction was 5%, the lowest level since July 2022.

The index of sales prospects over the next six months increased by 4 points to 53. The index of potential buyer traffic and the NAHB index of current sales conditions also increased by two points and one point, respectively.
Tuesday, September 17, 2024 at 6:58 a.m. PDT

Dreamforce Reflections

Once again, greetings from San Francisco, this time from the annual Salesforce (CRM) gathering known as Dreamforce. I think this is my fifth Dreamforce and I have to say that each edition is more surprising and different than the last.

Take my experience last night.

I’m sipping on a bottle of water during happy hour (hey, it’s a work night) at the Time AI 100 dinner (note: Time is owned by Salesforce CEO Marc Benioff and his wife Lynne) and I see AMD CEO (AMD), Dr. Lisa Su, standing in the corner with her husband. So of course, I go over and say hello and start a conversation.

During the conversation, I pointed out to her that I should quit my job and go back to school to learn more about AI. She advised me against doing so, acknowledging that the technology is evolving so quickly that the industry is in many ways learning on the job.

This made me worry about AI safety (a topic that was further amplified in the discussions I had at the dinner table) and the impact on employment of this rapidly expanding technology. But it also reinforced the idea that even a year from now, many companies across industries will see significant margin gains as AI becomes more widespread internally in their workflows.

The question I have is whether the market has factored all of this into stock prices.

Nevertheless, here’s what Su told me last week about the future of AI at the Goldman Sachs Technology and Media Conference.
Tuesday, September 17, 2024 at 6:40 a.m. PDT

Retail sales beat Wall Street estimates in August

Retail sales beat Wall Street expectations in August as investors watched closely for signs of a slowdown in consumer spending. The figures come as the U.S. Federal Reserve (Fed) opens in Washington for a two-day policy meeting that is expected to see the central bank cut interest rates as economic growth slows and inflation falls.

Retail sales rose 0.1% in August. Economists had expected spending to decline 0.2%, according to Bloomberg data. Meanwhile, July retail sales were revised up to 1.1% from a previous reading that showed sales rose 1% in the month, according to Census Bureau data.

“Stronger-than-expected retail sales data for August suggest that, buoyed by rapid wealth gains and lower energy prices, consumers continue to spend freely despite the slowing labor market,” Capital Economics North America economist Olivia Cross wrote in a note to clients Tuesday.

The release comes as investors widely expect the Fed to cut interest rates for the first time since 2020 when its next policy decision is announced at 2 p.m. ET on Wednesday.

“I don’t think it changes much,” Stephen Juneau, senior U.S. economist at BofA Securities, told Yahoo Finance. “It’s kind of a non-event.”

As of Tuesday morning, markets were pricing in a 67% chance that the Fed will cut interest rates by 50 basis points, compared with a 33% chance that the Fed will opt for a more modest 25 basis point cut, according to the CME FedWatch tool.
Tuesday, September 17, 2024 at 06:31 PDT

Stocks open higher ahead of key Fed decision

Stocks rose Tuesday, with technology stocks leading the advance, as investors weighed fresh retail sales data ahead of a crucial Federal Reserve meeting on an interest rate cut.

The Dow Jones Industrial Average (DJI) rose about 0.2%, after hitting a record closing high for the flagship index. The S&P 500 (GSPC) gained about 0.4%, while the tech-heavy Nasdaq Composite (IXIC) gained 0.7%.