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SPEAKER_00: Drifting, my weekly market review, September 29th, 2024.
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SPEAKER_00: The final full week of September is historically,
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SPEAKER_00: on average,
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SPEAKER_00: the worst performing week of the year for US stocks.
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SPEAKER_00: This time around,
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SPEAKER_00: a very limited amount of consequential economic data ahead of the latest inflation
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SPEAKER_00: reading on Friday and only a handful of earnings reports left the market feeling
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SPEAKER_00: untethered and drifting.
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SPEAKER_00: at the mercy of some notoriously unpredictable moving targets,
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SPEAKER_00: such as trader sentiment,
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SPEAKER_00: global geopolitics,
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SPEAKER_00: an erratic US election campaign that feels like it could go off the rails at any moment,
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SPEAKER_00: a looming government shutdown,
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SPEAKER_00: and lots and lots of Fed speak,
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SPEAKER_00: with at least eight central bank officials,
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SPEAKER_00: including Chairman Jerome Powell on Thursday,
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SPEAKER_00: scheduled to make speeches or participate in conferences during the week.
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SPEAKER_00: The Chinese central bank made a surprising cut in one of its key interest rates
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SPEAKER_00: over the weekend as part of a massive package of moves to give an adrenaline shot
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SPEAKER_00: to a rapidly cooling economy.
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SPEAKER_00: There was more appalling carnage in the Middle East.
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SPEAKER_00: U.S.
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SPEAKER_00: stocks,
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SPEAKER_00: however,
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SPEAKER_00: began the week by floating gently higher in a rather humdrum session on Monday on
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SPEAKER_00: the back of the still high market-driven probability of yet another half-point
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SPEAKER_00: interest rate cut in November,
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SPEAKER_00: resulting from some very pro-rate-cut Fed speak from rate-setting committee members
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SPEAKER_00: Austin Galsby and Rafael Bostic.
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SPEAKER_00: The S&P 500 index notched its 40th all-time record high close of the year.
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SPEAKER_00: It was more of the same on Tuesday.
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SPEAKER_00: Tech stocks led markets higher,
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SPEAKER_00: partly on the back of all the Chinese stimulus news,
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SPEAKER_00: to all-time record high number 41 of 2024 for the S&P 500.
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SPEAKER_00: This was despite some evidence of declining consumer confidence and Fed speak from
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SPEAKER_00: Governor Michelle Bowman,
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SPEAKER_00: the only policymaker to dissent on the recent half-point cut.
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SPEAKER_00: who said that the central bank should lower interest rates at a measured pace.
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SPEAKER_00: Sounds like Michelle is still unconvinced by this whole jumbo half-point cut malarkey.
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SPEAKER_00: Some air was let out of the balloon on Wednesday as the dearth of any significant
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SPEAKER_00: data or earnings-based catalyst continued,
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SPEAKER_00: and investors maybe got a little bout of vertigo at the elevated stock price levels
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SPEAKER_00: achieved over the last few weeks and decided to back off a bit for a while.
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SPEAKER_00: In the background,
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SPEAKER_00: the growing prospect of an Israeli ground invasion in Lebanon started raising
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SPEAKER_00: serious geopolitical concerns.
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SPEAKER_00: The indexes all finished lower, erasing most of Monday and Tuesday's record-breaking gains.
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SPEAKER_00: Stock prices were strongly buoyed on Thursday morning by a very healthy second
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SPEAKER_00: quarter gross domestic product GDP final estimate of 3% annualized.
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SPEAKER_00: Robust sales forecast from Micron,
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SPEAKER_00: the stock surged 20% in a matter of minutes,
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SPEAKER_00: a better than expected pre-market weekly jobless claims number,
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SPEAKER_00: a further supercharging of the Chinese stimulus package,
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SPEAKER_00: and the emergence of a possible Israel-Lebanon 21-day ceasefire proposal.
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SPEAKER_00: Although markets gave some back later in the session,
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SPEAKER_00: as Netanyahu appeared to torpedo ceasefire hopes,
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SPEAKER_00: the plethora of good news prevailed,
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SPEAKER_00: and Jerome Powell offered an optimistic picture of the economy in a major speech.
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SPEAKER_00: It was another up day across the board for stocks,
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SPEAKER_00: and yet again,
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SPEAKER_00: an all time record closing high for the S&P 500.
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SPEAKER_00: The most impactful piece of data of the week hit the news wires before the opening bell on Friday.
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SPEAKER_00: The latest personal consumption expenditure,
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SPEAKER_00: PCE price index,
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SPEAKER_00: which the Fed uses to judge where it believes inflation to really be,
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SPEAKER_00: came in as expected at 2.2% annualized,
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SPEAKER_00: still very close to the central bank's 2% target number,
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SPEAKER_00: and clearing the path for more large and or frequent interest rate cuts by keeping
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SPEAKER_00: the Goldilocks narrative intact.
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SPEAKER_00: After initially reacting very positively in response to this data,
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SPEAKER_00: stocks settled back into a holding pattern and ended basically unchanged for the session,
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SPEAKER_00: but largely higher for the week.
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SPEAKER_00: We cannot get in the minds of Fed interest rate setting committee members to know
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SPEAKER_00: what they are thinking,
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SPEAKER_00: but if I had to guess,
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SPEAKER_00: I'd say it's something like,
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SPEAKER_00: if inflation was caused by the pandemic,
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SPEAKER_00: stimulus,
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SPEAKER_00: spending,
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SPEAKER_00: and now resolved supply chain issues,
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SPEAKER_00: and all of those are now gone and inflation is pretty much back at 2%,
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SPEAKER_00: then why do we need to have interest rates so high?
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SPEAKER_00: To use a simple analogy, it's like we were in a car hurtling down a steep hill.
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SPEAKER_00: The Fed had to ride the brakes to stop inflation and make sure the car didn't get out of control.
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SPEAKER_00: But now the economy is back on a flat road and the Fed still has a foot on the brakes.
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SPEAKER_00: If they don't let off, the car will eventually stop.
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SPEAKER_00: That equals a recession.
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SPEAKER_00: This is where the market's strong conviction in more jumbo half-point interest rate
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SPEAKER_00: cuts before the end of the year and into 2025 comes from.
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SPEAKER_00: Despite the Fed itself only projecting a total of a half-point cut across the
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SPEAKER_00: remaining couple of meetings of 2024.
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SPEAKER_00: Either financial markets will be disappointed,
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SPEAKER_00: or the Fed will be bullied by Wall Street into cutting rates more than they would
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SPEAKER_00: instinctively like.
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SPEAKER_00: We'll find out soon enough, and one big clue will be this week's jobs report.