The Federal Open Market Committee meeting dominated the markets this week, with the Fed deciding to leave rates unchanged at 5.25%-5.5%, as widely expected.
Dot Plot Indicates 1 More Rate Hike, Fewer Cuts in 2024: The median preference for the projected fed funds rate at the end of 2023 held steady after Wednesday’s Fed decision, aligning with the previous June forecast at 5.6%. This suggests the Fed is leaning toward one additional rate increase in either one of the two remaining meetings this year. FOMC members have scaled back their projected rate cuts for next year, now indicating a total of 50 basis points of cuts for 2024, a more hawkish shift from the previous June projection of a full percentage point reduction.
Powell Delivers Balanced Remarks: During his press conference, Fed Chair Jerome Powell cautiously balanced his tone. He warned the path to the 2% inflation target has a long way to go, possibly keeping interest rates elevated for longer. At the same time, Powell indicated the Fed’s readiness to proceed carefully based on forthcoming economic data without a firm commitment to additional rate hikes.
Treasury Yields Hit 17-Year Highs: Yields for two-year Treasury notes reached 5.2% on Thursday, marking their highest point since July 2006. Simultaneously, the 10-year yield surpassed 4.4%, reaching levels last seen in November 2007.
Chart of The Week: Short-Term Treasury Yields Surge To July 2006 Levels As Fed Sticks To Higher-For-Longer Stance
Cisco Set To Acquire Splunk: Cisco Systems Inc. (NASDAQ:CSCO) announced an agreement to acquire cybersecurity company Splunk Inc. (NASDAQ:SPLK) in a deal valued at approximately $28 billion, or $157 per share. The purchase price implies a premium of 31.3% on Splunk’s Sept. 20 closing price of $119.59. Splunk’s stock surged 21% on the news.
Jamie Dimon Visits Detroit: JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon paid a visit to Detroit, where he delivered a speech to the Detroit Economic Club at the MotorCity Casino and Hotel. His appearance marked the 10-year anniversary of JPMorgan’s $200-million investment in the city aimed at catalyzing business growth in Detroit. Dimon expressed concerns about the potential resurgence of inflationary pressures due to ongoing elevated government spending.
Stock Market Highlights: The stock market witnessed a volatile week as the FOMC meeting weighs on investor risk sentiment.
Both the S&P 500 Index and the Nasdaq 100 recorded their worst trading week since early March 2023. The CBOE Volatility Index (VIX), also known as the fear gauge, rose over 20%, marking its best week since the end of July.
Interest rate-sensitive sectors like the Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) and the Real Estate Select Sector SPDR Fund (NYSE:XLRE) underperformed, while defensive angles like the Health Care Select Sector SPDR Fund (NYSE:XLV) fared better.
Among large cap companies, the best performer was Splunk, followed by Humana Inc. (NYSE:HUM) and CBOE Global Markets Inc. (NYSE:CBOE). The laggards were Samsara Inc. (NYSE:IOT), Block Inc. (NYSE:SQ) and Celsius Holdings Inc. (NASDAQ:CELH).
UAW Expands Strike: On Friday, the United Auto Workers revealed its plan to widen the scope of strikes to 38 facilities in 20 states, primarily targeting parts and distribution sites at General Motors (NYSE:GM) and Stellantis N.V. (NYSE:STLA). Conversely, Ford Motor Co. (NYSE:F) won’t be affected by the additional strikes as its negotiations with the UAW move forward.
What To Watch In The Week Ahead: The Fed’s preferred inflation gauge, the personal consumption expenditure index, is due Friday, with economists predicting a rise in the annual headline PCE from 3.3% in July to 3.5% in August. Core PCE is expected to dip slightly from 4.2% to 3.9%.
Several Fed members will also make public appearances, including Federal Reserve Chair Powell hosting a town hall with educators Thursday. On the same day, the final second-quarter GDP reading will also be released.
Next week’s earnings reports include Costco Wholesale Corp. (NASDAQ:COST) and Cintas Corp. (NYSE:CTAS) on Tuesday; Micron Technology, Inc. (NASDAQ:MU) and Paychex, Inc. (NASDAQ:PAYX) on Wednesday; Nike Inc. (NYSE:NKE), Jabil Inc. (NYSE:JBL) and Carmax Inc. (NYSE:KMX) on Thursday and Carnival Corp. (NYSE:CLL) on Friday.
Produced in association with Benzinga