Following the Federal Reserve’s revised outlook for interest rates, trading became highly volatile, leading to a panic during the regular session. Jeff Buchbinder, LPL Financials’ chief equity strategist, attributed Wednesday’s market slump to “stretched positioning and sentiment,” which made stocks susceptible to a selloff. He noted that the significant rise in inflation expectations and the consequent bond selloff provided a convenient trigger. With the tech sector’s support waning, no other groups were able to compensate for the gap. Investors are now eagerly awaiting the GDP report, with futures indicating a cautious rebound.

European markets experienced significant declines, mirroring global trends. The Swedish Riksbank announced a 25-basis-point rate cut, while Norway’s central bank opted to keep its policy rate unchanged but hinted at potential rate reductions starting in March 2025. The Bank of England is also set to discuss its monetary policy decisions later in the day. Amid these developments, shares of British public services provider Serco Group rose by approximately 6.77%, whereas French broadcaster Canal+ saw its shares drop by 10.39%. Investors are closely watching these central bank actions and their implications for the broader market.

Asia-Pacific stocks and currencies experienced a decline amid a broader market sell-off. This downturn followed the Bank of Japan’s decision to maintain its policy rate at 0.25% for the third consecutive meeting. In reaction to this decision, Japan’s Nikkei 225 fell by 0.69%, and the Topix decreased by 0.22%. South Korea’s Kospi index dropped 1.95%, while the Kosdaq index declined 1.89%. Australia’s S&P/ASX 200 saw a 1.7% drop, Hong Kong’s Hang Seng index fell by 0.36%, and China’s CSI 300 index managed a slight increase. Investors are closely monitoring these developments as they reassess their positions in the market.

Economic Calendar

Earnings Calendar

Notable reports for Monday before the bell include CAN, KMX, CTAS, CAG, DRI, FDS, LW, & PAYX. After the bell reports include AVO, FDX, & NKE.

News & Technicals’

The Federal Open Market Committee (FOMC) voted 11-1 on Wednesday to reduce the federal funds rate to a range of 4.25%-4.5%. Cleveland Fed President Beth Hammack was the sole dissenter, advocating for maintaining the current rates. Despite the rate cut, Fed Chair Jerome Powell emphasized that interest rates are still significantly restraining economic activity and indicated that the Fed plans to continue cutting rates. However, Powell noted that further rate cuts would depend on more substantial progress in reducing inflation. The new quarterly forecasts revealed that several officials now anticipate fewer rate cuts next year compared to their earlier projections, and they expect slower progress on inflation in 2025. Additionally, Powell addressed a question regarding the Fed’s potential response to possible tariffs from the Trump administration.

Micron Technology shares plummeted by 15% following the release of disappointing guidance for the second quarter. Despite this, the company reported in-line revenue results and exceeded quarterly earnings expectations, with adjusted earnings per share of $1.79 on revenue of $8.71 billion, surpassing analysts’ forecasts of $1.75 per share. Year to date, Micron’s shares have risen by 22%, although this lags behind Nasdaq’s 29% gain. In its earnings report, Micron emphasized growth opportunities in data centers and artificial intelligence ventures, particularly those involving Nvidia’s processors.

On Thursday, the 10-year U.S. Treasury yield increased slightly, rising over one basis point to 4.516%, following the Federal Reserve’s indication that fewer rate cuts might be expected next year. This rise came after the yield surpassed 4.5% in the previous session; a level often associated with heightened market volatility. In contrast, the 2-year Treasury yield fell by more than two basis points to 4.331%. According to the CME FedWatch tool, the likelihood of another rate cut at Fed’s first policy meeting in January has dropped to below 10%. Investors are closely monitoring these developments as they reassess their expectations for future monetary policy.

During his annual “Direct Line” Q&A session with Russian citizens on Thursday, President Vladimir Putin acknowledged that inflation is a significant issue in Russia and that the economy is overheating. He described inflation as an “alarming signal” and emphasized that both the government and the Russian central bank are working towards achieving a “soft landing” for the economy. Despite these challenges, Putin expressed confidence in the overall performance of the economy, projecting a growth rate of 3.9-4% for the year.

Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School, described the recent stock sell-off on Wall Street as “healthy.” He explained that the Federal Reserve’s cautious outlook on future rate cuts served as a “reality check” for investors. Siegel noted that the market had been in a “runaway situation,” and the Fed’s stance reminded investors that interest rates would not drop as low as they had hoped when the easing cycle began. He remarked that the market’s previous optimism was excessive, making the sell-off unsurprising. Siegel also predicted that the Fed would likely reduce the number of rate cuts next year, possibly implementing just one or two reductions.

As we attempt to achieve a relief rally keep in mind the revised outlook for interest rates will keep price volatility challenging and option prices higher than normal for a while so plan carefully.  Today we have another big day of market-moving economic data that will kick off with the GPD report so buckle up it could be another very bumpy day.

Trade Wisely,

Doug