Friday, October 18th, 2024

We’re in a curious holding pattern of sorts in this morning’s pre-market trading. Investors are feeling the ceiling just above their heads currently, with the Dow still in the midst of setting new all-time closing highs, and the S&P 500 not far behind. These two indexes and the Nasdaq are all looking to close today for the sixth up-week in a row.

Currently, the Dow is -51 points, while the S&P is +15 and the Nasdaq +120 points. We do see some impactful earnings and economic reports, but nothing we expect will tilt the balance of market sentiment today. Bond yields are also fairly stagnant at +4.087% on the 10-year and +3.965% on the 2-year.

Housing Starts and Buildings Permits Mixed

Headline Housing Starts for September were slightly above estimates: 1.354 million seasonally adjusted, annualized units were just ahead of the 1.35 million expected, down a tad from the revised 1.361 million the previous month. Even though historically still pretty low, these numbers represent the near-term high point in new housing starts.

Building Permits — a proxy for future Starts — was slimmer than expected: 1.428 million seasonally adjusted, annualized units missed the 1.45 million estimate, and also missed the slight downward revision in August to 1.47 million. Mortgage rates ticking back up last month — unexpected, seeing as the Fed is cutting interest rates — helped permits holders get a little shy.

Single-family starts have picked up again: +2.7% month over month and +5.5% year over year, according to CNBC’s Diana Olick. It’s the Multi-family construction, which had led the homebuilding market for a while, that’s now experiencing some oversupply issues. But Permits look a little weaker on the single-family side. Much of this static can be removed with more demonstrable Fed policy. 

Will the Fed Be Forced to Halt Rate Cuts?

Currently there is some question whether the Fed will continue to move interest rates down an additional 50 basis points (bps) from now til the end of the year. While stronger economic numbers in Retail Sales and elsewhere seem to suggest that the economy does not need drastically lower interest rates to perform well, the Fed is currently agnostic on the labor market going forward.

The tricky thing about this is the timing: the next Fed meeting starts right after Election Day, and ends the day before the new Employment Situation report is released. Currently, the Fed has promised a 25 bps rate cut on November 7th, and without having seen the jobs numbers ahead of time, will probably go forward with the cut, risking that jobs numbers won’t spike back up.

Even if jobs numbers do swing back higher, as they did with +254K new jobs filled in September, this is not exactly a “Chicken Little” moment. And if the Fed were to halt rate cuts there for a while, we’d still be in the +4.50-4.75% range, which isn’t exactly giving away free money.

The Fed really doesn’t want to have to reverse course. That said, there seems to be growing sentiment that the Fed may choose to hold steady in its December meeting (after cutting in Novermber) and not make another cut until 2025 sometime. To be continued…

Procter & Gamble Mixed in Fiscal Q1

Household products giant Procter & Gamble PG reported better-than-expected earnings for its fiscal Q1 this morning: $1.93 per share outpaced estimates by 3 cents. However, revenues of $21.74 billion for the quarter was below the $21.93 billion analysts were looking for. Weaker sales in greater China (not Hong Kong) is being pointed to as the culprit. Shares are selling off -1%; P&G shares had gained +15% year to date.

Check out the updated Zacks Earnings Calendar here.

AmEx Beats and Meets in Q3

American Express AXP also outperformed on its bottom line this morning, with Q3 earnings coming in at $3.49 per share, nicely above the $3.27 analysts were looking for. On the revenues side, AmEx came in right in-line with expectations at $16.64 billion. Full-year earnings guidance was ratcheted up notably, to a range of $13.75-14.05 per share. The stock is selling off a bit on the news; AmEx has grown by +53% year to date.

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