Vikki Zhao
PUBLISHED September 23, 2024, 10:00 AM EST. 6 min read
FOMC Decision Likely to Drive Market Direction After Stalling Near Resistance. The key driver of market direction is expected to come from sentiment surrounding future Fed rate cuts, as the FOMC begins a monetary loosening cycle.
While AimStar remain optimistic on equities in the long term due to the sustained uptrend, short-term volatility may persist. This is largely because the market is navigating a seasonally slow period, combined with sharp sector rotations that have left some areas overbought.
Technically, the stage is set for a breakout above the resistance level that has capped prices since mid-July, with immediate resistance near the 5670 level. A decisive break above this could push prices toward 5927. On the other hand, if the Fed’s decision or language disappoints, the market could consolidate. In such a scenario, initial support sits at the 50-day moving average (~5513), followed by 5410.
The Fed has announced its first rate cut, reducing rates by 50bps as it begins to ease monetary policy. The Fed anticipates at least another 50bps of cuts this year, though the market expects closer to 75bps.
Looking ahead to 2025, market expectations are for approximately 125bps of additional rate cuts. While rate cuts could ultimately benefit equities, it’s important to note that markets have experienced significant pullbacks after initial cuts in the past.
Diversification continues to play a crucial role, with equities gaining from broader market participation. This is reflected in the equal-weight S&P 500, which recently broke out to new highs. The “average stock” is also showing improved relative performance, breaking above a downtrend and approaching horizontal resistance.
With nearly 77% of S&P 500 stocks trading above their 200-day moving averages, we continue to favor active management, as we believe the average stock could outperform over the intermediate term.
The rapid rotation into previously lagging sectors has created overbought conditions in more defensive areas of the market. These elevated levels may contribute to near-term volatility, especially as the market grapples with the seasonal slowdown and election-related uncertainties.
*The viewpoints are attributed by Olena Li.
Fed Cuts Rates by Half a Point, Signaling Shift in Economic Policy
The Federal Reserve reduced its benchmark interest rate by half a percentage point, bringing it to a range of 4.75% to 5%, marking the first rate cut in over four years. The move reflects a shift in focus towards supporting the labor market, although Fed Chair Jerome Powell warned against assuming additional large cuts. A narrow majority of Fed officials support further cuts in 2024. Governor Michelle Bowman dissented in favor of a smaller quarter-point cut, highlighting internal divisions. While inflation has cooled to 2.5%, concerns about labor market weakness and rising delinquencies persist, creating uncertainty about future policy direction.
Traders Bet on More Rate Cuts as Fed Implements Half-Point Reduction
Traders increased their bets on further U.S. interest-rate cuts after the Federal Reserve lowered its benchmark rate by half a percentage point, signaling more reductions this year. The market now expects an additional 70 basis points of cuts in the Fed’s two remaining 2024 meetings, contrasting with policymakers’ forecast of only a half-point reduction in 2024. While Fed Chair Jerome Powell emphasized that Wednesday’s move wasn’t a definitive indicator of future cuts, traders remain more aggressive in their outlook. Treasury yields rose after the decision, while bond market volumes surged as traders locked in profits tied to the rate cuts.
SEC Approves Half-Penny Increments for Stock Quotes, Aims to Boost Competition
The US Securities and Exchange Commission (SEC) has approved rules allowing thousands of stocks and ETFs to be quoted in half-penny increments, aimed at increasing competition and liquidity. The unanimous decision will affect about 2,400 securities, particularly those with bid-offer spreads of less than a cent. The move could help exchanges like NYSE and IEX Group better compete with wholesale brokers. Additionally, the SEC has introduced lower fee caps, limiting the amount exchanges can charge brokers, which may lead to legal challenges. These changes, effective in November 2025, are part of a broader market-structure overhaul under SEC Chair Gary Gensler.
Bank Stocks Surge Following Fed Rate Cut, Optimism Grows for Future Gains
U.S. bank stocks soared on Thursday after the Federal Reserve’s significant rate cut, signaling investor confidence in monetary easing to boost both major Wall Street banks and smaller regional lenders. Goldman Sachs, Capital One, and Citigroup each rose over 3%, with other banks such as Wells Fargo, Bank of America, and JPMorgan Chase also seeing gains. The KBW Nasdaq Bank Index and other indexes tracking regional banks climbed by around 2%. While Moody’s warned of an initial dip in net interest income due to slower deposit repricing, analysts remain optimistic about long-term growth. Lower rates are expected to eventually bolster bank earnings, especially as commercial borrowing demand recovers.
Nvidia, AMD Lead Tech Rally Following Fed Rate Cut
Nvidia (NVDA) and Advanced Micro Devices (AMD) stocks surged after the Federal Reserve’s 50 basis point rate cut. Nvidia jumped more than 5%, while AMD rose as much as 7%, fueling a broader tech rally. The Nasdaq gained 2.7%, with the semiconductor sector leading the way as the PHLX Semiconductor Index rose 5%. Nvidia’s stock has seen fluctuations recently due to a Department of Justice antitrust investigation but continues to benefit from the AI boom. Despite tough export controls affecting sales to China, Nvidia and AMD remain key players in the AI chip market, with Nvidia up 172% year-over-year.
Bank of England Holds Rates at 5%, Extends Bond Reduction Plan
The Bank of England (BoE) held interest rates at 5% on Thursday, with a cautious approach to future cuts as inflation pressures persist. The Monetary Policy Committee voted 8-1 to pause rate changes, with only Swati Dhingra pushing for a quarter-point cut. Despite a recent 0.5% rate cut by the U.S. Federal Reserve, BoE Governor Andrew Bailey emphasized the need to avoid premature or excessive cuts due to high wage growth and lingering inflation. The BoE also extended its bond reduction plan, lowering its holdings by £100 billion over the next year, a decision anticipated to ease pressure on UK finance minister Rachel Reeves.
Apple Faces EU Warning to Open iPhone Operating System
The European Union has warned Apple to open its iPhone and iPad operating systems to rival technologies or risk significant fines under the Digital Markets Act (DMA). The EU watchdogs gave Apple six months to comply with new interoperability laws. If Apple fails to adapt, it could face penalties of up to 10% of global sales. Apple previously stated it would withhold certain features, such as iPhone Mirroring and SharePlay, from the EU due to the DMA’s requirements. The company argues that opening its system may compromise user security, though the EU stresses the importance of interoperability.
Russia’s Shadow Fleet Struggles to Break U.S. Gas Sanctions via Arctic LNG
A complex global network is aiding Russia’s efforts to circumvent U.S. sanctions by shipping gas from its $21 billion Arctic LNG 2 facility. A seemingly ordinary apartment near Mumbai is linked to Ocean Speedstar Solutions, a key player in a shadow fleet of tankers transporting Russian liquefied natural gas (LNG). Despite Western sanctions, Russia is determined to boost LNG exports to Asia, particularly China, using a fleet of older vessels bought through opaque channels in Dubai. With winter approaching and sanctions tightening, Russia’s LNG strategy faces growing challenges, as time and icebergs may soon halt shipments.
Google Wins EU Court Battle Over €1.5 Billion Fine for AdSense Abuse
Google secured a major legal victory, overturning a €1.5 billion fine imposed by the EU for anticompetitive practices in its AdSense service. The EU General Court in Luxembourg found that while the European Commission was mostly correct in its findings, it made key mistakes regarding the duration of the alleged abuse. This decision can still be appealed at the EU’s highest court. The ruling follows recent wins for EU antitrust chief Margrethe Vestager, but it marks a partial setback in her decade-long push to regulate big tech.
TD Bank CEO Bharat Masrani to Retire, Ray Chun Named Successor Amid U.S. Regulatory Challenges
TD Bank announced that CEO Bharat Masrani will retire in April 2024, with Ray Chun, head of its Canadian banking unit, set to take over. Masrani, CEO since 2014, focused on expanding TD’s U.S. operations, growing it to become the 10th largest U.S. bank. However, the bank faces U.S. regulatory fines related to anti-money laundering weaknesses, leading to its first loss in decades. Chun, a 32-year TD veteran, will step into the CEO role as the bank navigates these challenges. The bank also announced leadership changes in its Wealth Management and TD Securities divisions.
*The viewpoints are attributed by Wallis Zeng.
Tesla Falls Further as Reported Robotaxi Delay Weighs on EV Maker
Reported on July 12 by AIMSTAR.CA – Tesla (TSLA) shares are slipping more than 1% in premarket trading after suffering the steepest losses of any S&P 500 constituent Thursday with an 8.4% plunge on a report the EV maker is postponing its robotaxi unveiling by two months. The company previously indicated it would hold an event to introduce the autonomous vehicles on Aug. 8, but Bloomberg reported the presentation has been pushed back to October. Tesla shares entered Thursday on an 11-session winning streak to move into the green for the year, fueled by its better-than-expected second quarter deliveries report, but returned into negative territory for 2024 on yesterday’s plunge.
U.S. Inflation Cools, Possible Fed Rate Cut in September
Reported on July 11 by AIMSTAR.CA – U.S. inflation slowed in June, mainly due to reduced housing costs, raising the possibility of a Federal Reserve rate cut in September. Core CPI, excluding food and energy, increased by just 0.1% from May and 3.3% year-over-year, marking the slowest rise in over three years. Overall CPI fell 0.1% from the previous month. The labor market showed mixed signals, with high jobless benefit applications but a drop in first-time filings. Traders anticipate a rate cut in September, and Fed Chair Jerome Powell emphasized that decisions will be data-driven.
July 15 – July 19 COMING UP
- Federal Reserve Chairman Jerome Powell speaks on Monday, with other Fed officials making remarks throughout the week.
- Goldman Sachs, Bank of America, and Morgan Stanley are among the major bank earnings coming this week.
- Netflix and Johnson & Johnson also report earnings this week, while Amazon hosts its annual Prime Day sales event.
- The Republican National Convention will feature remarks from presidential candidate Donald Trump.
This week (September 23), earnings reports will span several industries, including semiconductors, retail, homebuilding, automotive services, consulting, technology, software, and apparel services:
Monday: Semiconductor manufacturer Micron Technology (#MU) will release its earnings, with a focus on memory chip demand and pricing trends in DRAM and NAND markets.
Tuesday: Retail giant Costco Wholesale (#COST) and homebuilder KB Home (#KBH) will announce their earnings, shedding light on consumer spending patterns, inflation impact, and housing market conditions.
Wednesday: Automotive parts retailer AutoZone (#AZO) and consulting firm Accenture (#ACN) are set to release their earnings reports, with the market watching for insights into auto repair trends and global consulting services demand.
Thursday: BlackBerry (#BB) and Ispire Technology (#ISPR) will report, providing updates on the cybersecurity landscape and innovative technology developments in vaping devices.
Friday: Software provider Progress Software (#PRTS), uniform and facilities services company Cintas (#CTAS), and aviation services provider AAR Corp (#AIR) will close out the week with their earnings reports, offering a glimpse into the software, apparel, and aerospace sectors.
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