U.S. Futures Rise | Market Focuses on Soft Landing Narrative
Pre-market Market Movements 1.
On September 19th (Thursday) pre-market, the three major U.S. stock index futures rose in unison.
As of press time, Dow futures were up 1.21%, S&P 500 index futures were up 1.66%, and Nasdaq futures were up 2.07%.
2.
As of press time, the German DAX index was up 1.49%, the UK's FTSE 100 index was up 1.04%, the French CAC 40 index was up 1.98%, and the Euro Stoxx 50 index was up 1.81%.
3.
As of press time, WTI crude oil was up 1.12%, trading at $70.66 a barrel.
Brent crude oil was up 0.99%, trading at $74.38 a barrel.
Market news indicates that the Federal Reserve's interest rate cut has "landed," and the narrative of a "soft landing" for the U.S. economy has once again become a market focus.
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On Wednesday, the Fed announced an interest rate cut as expected, lowering rates by 50 basis points, marking the first reduction in borrowing costs in over four years.
Powell reassured investors that this significant rate cut was to protect a resilient economy, not an emergency response to recent labor market weakness.
The extent to which Fed Chairman Powell's outlook is realized may be a key factor affecting the stock and bond market trends for the remainder of 2024.
The prospect of a "soft landing" has boosted the stock and bond markets this year, but signs of a weakening labor market have raised concerns that the Fed's actions may be too late.
Eric Beyrich, co-chief investment officer at investment advisory firm Sound Income Strategies, said, "At this point, it seems the market will take a pause to digest the news that surprised many.
There will still be people wondering, 'Wow, if the Fed cuts rates so sharply, what signs are they seeing that we are not that the economy will get worse?'"
A 50 basis point rate cut is still not enough!
The market bets on the Fed to cut rates by another 70 basis points this year.
After the Fed lowered the benchmark rate by half a percentage point and hinted at further rate cuts this year, traders increased their bets on the pace of future rate cuts in the U.S.
The market now expects the Fed to cut rates by another 70 basis points in the two remaining meetings of the year, reflecting a much more aggressive stance than that of policymakers.
Jamie Patton, co-head of global rates at TCW Group Inc., said that it is correct that traders are pricing in more rate cuts than what Fed officials have implied in the so-called dot plot.
She said, "Historically, the market has done a fairly good job at predicting the magnitude and speed of preemptive rate cuts.
However, in the last three cycles, the rate market has significantly underestimated the total amount of rate cuts.
We believe that this time will be no exception, and we will see the same theme again in this cycle."
"New Bond King" Gundlach: A 50 basis point rate cut is still not enough, the Fed is a bit behind the curve.
Gundlach, founder of DoubleLine Capital, said he was not surprised by the Fed's 50 basis point rate cut, but further rate cuts are needed because the U.S. economy may have already begun to shrink.
Gundlach said signs of economic problems include excessively high credit card interest rates.
"Consumer debt levels are very high.
I expect the economic data in future reports to be weaker.
I still think there's a good chance that the history books will say that September 2024 was the beginning of a recession."
The Fed's rate cut cycle has begun!
The market's trend of "big turning small" is becoming more apparent, and small-cap stocks are poised for takeoff.
Some Wall Street strategists say that under the macro background of the Fed's rate cuts, small and mid-cap stocks are likely to outperform the seven tech giants of the U.S. stock market and broad market stocks.
The main logic is that small and mid-cap stocks are often very sensitive to the benchmark interest rates set by the Fed, and they rely heavily on floating rate loans.
Therefore, under the context of the Fed's rate cuts, it means that their long-term debt pressure will be significantly reduced, which is expected to improve profit margins and stock valuations.
Thus, against the backdrop of the interest rate futures market almost 100% pricing in a 100 basis point rate cut by the Fed before the end of the year, the classic rotation of small and mid-cap stocks or the profit recovery trend of small and mid-cap stocks is likely to fully emerge, thereby driving capital to shift to some small and mid-cap stocks that benefit from the rate cut cycle and have very cheap stock prices and valuations, rather than those tech giants with valuations at historical highs.
After the Fed's sharp rate cut, the market's expectation of easing is still ahead of the curve, and U.S. Treasury yields are falling.
As traders shift their focus from the much-anticipated first rate cut by the Fed to labor market conditions, U.S. Treasury bonds have risen slightly.
Treasury yields across all maturities have declined, with shorter-term Treasuries performing well.
Among them, the two-year Treasury yield fell 3 basis points to 3.59%.
Although Fed Chairman Powell described the 50 basis point rate cut on Wednesday as a "reassessment" of policy, the market's bets on the pace and magnitude of further easing this year and beyond have hardly changed.
The money market tends to believe that the Fed will make three more 25 basis point rate cuts before the end of the year, with an expected 200 basis point rate cut next year.
Such expectations are more aggressive than the rate path shown in the Fed's latest dot plot, which only shows another 50 basis point rate cut this year.
Individual Stock News The EU warns Apple (AAPL.US) to open iPhone and iPad operating systems, or face hefty fines.
EU regulators, under the EU Digital Markets Act (DMA), announced that Apple must comply with new strict regulations to make its operating systems fully compatible with other technologies.
The EU regulators have given Apple six months to comply with the regulations, or face the threat of future penalties.
Although this statement is only one step away from formal adjustment, the EU's goal is to force Apple to redesign its services to allow competitors access to the iPhone and iPad operating systems.
It is reported that one of the goals of the DMA is to ensure that other developers can access key features of the iPhone, such as Siri voice commands and payment chips.
If Apple does not comply with the DMA, the EU may subsequently decide to initiate a formal investigation, which could ultimately lead to hefty fines of up to 10% of global annual turnover.
Labor negotiations are deadlocked, and thousands of Boeing (BA.US) employees are forced to take temporary leave.
Boeing, which is dealing with a strike, said it will temporarily lay off thousands of employees.
Boeing CEO Kelly Ortberg said in an email to employees: "We will start temporary leave in the next few days, which will affect a large number of executives, managers, and employees stationed in the United States."
"We plan to take a week off every four weeks during the strike."
Kelly Ortberg also said that he and other Boeing management "will accept corresponding pay cuts during the strike."
The large-scale temporary leave indicates that Kelly Ortberg is preparing for Boeing to deal with a long-term strike.
Given the anger of Boeing's ordinary workers, this strike is unlikely to be easily resolved.
Some analysts say that the protracted labor dispute could cost Boeing billions of dollars, further exacerbating the company's financial tension and threatening its credit rating.
Riding the AI wave!
T-Mobile (TMUS.US) expects EBITDA to increase to $39 billion by 2027.
One of the largest wireless telecommunications operators in the United States, T-Mobile, announced its growth targets for the next three years, expecting its profits to increase as customer numbers grow and new technologies such as artificial intelligence drive progress.
T-Mobile is working with OpenAI to develop a new platform called IntentCX to provide faster, more personalized customer service.
T-Mobile said that by accessing consumer data, IntentCX will be able to use meaningful understanding and knowledge of each customer to solve problems and take proactive actions on their behalf.
T-Mobile also announced a partnership with Nvidia, Ericsson, and Nokia to design mobile networks with AI, bringing more advanced features to wireless access networks.
In addition, T-Mobile expects EBITDA to increase to $39 billion by 2027; from 2023 to 2027, service revenue is expected to grow at a compound annual growth rate of about 5%, reaching $76 billion.