U.S. equity markets experienced a modest decline on September 19, 2023, as investors braced for the outcome of the Federal Open Market Committee (FOMC) meeting. The major indices remained near all-time highs, reflecting investor optimism despite the slight downturn. The anticipated decision, expected to lower the federal funds rate target range from 4.25% to 4.50%, is seen as largely predetermined, yet it carries significant implications for the economy.
The FOMC meeting is set for September 20, with the official announcement scheduled for 14:00 Eastern Standard Time, followed by a press conference with Fed Chair Jerome Powell at 14:30. According to Nick Timiraos of The Wall Street Journal, this meeting is unfolding during an unusual political climate, referencing ongoing criticisms from former President Donald Trump regarding interest rate policies.
In a notable development, the Senate confirmed Stephen Miran to replace former Fed Governor Adriana Kugler on the Federal Reserve Board. Miran, who will momentarily step away from his role as director of the Council of Economic Advisers, is actively participating in the current FOMC meeting. Meanwhile, the status of Fed Governor Lisa Cook remains secure following a ruling by the U.S. Court of Appeals for the D.C. Circuit, which upheld a lower court’s decision preventing Trump from dismissing her.
The market anticipates a rate cut, with the probability standing at 100%, according to CME FedWatch. However, the likelihood of a more aggressive, double rate cut of 50 basis points has decreased to 3.9%, down from 5.0% on the prior trading day.
Market Performance Ahead of FOMC Meeting
As trading concluded on the eve of the FOMC meeting, the tech-heavy Nasdaq Composite index fell 0.1% to 22,334, while the broader S&P 500 slipped 0.1% to 6,066. The blue-chip Dow Jones Industrial Average recorded a decline of 0.3%, closing at 45,757.
In contrast, shares of General Electric (GE) have reached new heights, with GE Aerospace stock surging 2.2% and hitting an all-time high of $294.74. This marks the first instance since 2000 that GE shares have surpassed their previous peak, reflecting a strategic separation into three distinct entities: GE Aerospace, GE Vernova, and GE HealthCare Technologies, finalized in April 2024. Analyst David Arcaro from Morgan Stanley has maintained an “Overweight” rating on GE stock, setting a target price of $675, citing strong opportunities for growth in electrification and gas turbine markets.
Retail Sales and Housing Market Insights
In a positive economic indicator, the Census Bureau reported a month-over-month rise in retail sales of 0.6%, significantly exceeding the consensus forecast of 0.2%. Year-over-year, sales increased by 5.0% in August. Bill Adams, Chief Economist at Comerica Bank, emphasized that consumer spending remains robust, particularly during the back-to-school shopping period, which has benefited online retailers and sales of clothing and school supplies.
Despite this positive trend, Adams cautioned that weaker grocery sales might suggest a pullback among lower and middle-income consumers. In contrast, affluent households appear more resilient, contributing to the strength in discretionary spending.
The housing market, however, continues to show signs of stagnation. The National Association of Homebuilders (NAHB) reported that the Housing Market Index held steady at 32 in September, falling short of the expected increase to 33. A troubling 39% of builders reported price reductions, the highest level since the post-COVID recovery began, indicating ongoing challenges in the housing sector. Eugenio J. Alemaán, Chief Economist at Raymond James, noted that regional conditions remain weak, with the South reporting a stagnant index of 29.
As the markets await the FOMC’s decision, the interplay of consumer dynamics and housing market trends will continue to shape the economic landscape in the coming months.
