Markets rally a day after big Fed rate cut

Dow went up 387, advancers over decliners over 4-1 & NAZ jumped 452.  The MLP index was steady in the 287s & the REIT index fell 2 to the 437s on high interest rates.  Junk bond funds inched higher & Treasuries saw more selling which raised yields (more below).  Oil rose in the 71s (more below) & gold gained 8 to 2607 (in record territory).

Dow Jones Industrials

Treasury yields were little changed as investors digested the Federal Reserve's decision to cut interest rates by 50 basis points yesterday.  The yield on the 10-year Treasury was up more than 7 basis points at 3.76% & the 2-year Treasury yield was last nearly 4 basis points higher at 3.64%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%. The Federal Reserve on Wednesday delivered a 50 basis point interest rate reduction, bringing the federal funds rate to 4.75%-5.00%.  The size of the cut was in line with market expectations, which had shifted from expecting a 25 basis point cut to a bigger 50 basis point one in recent days.  It's the first rate cut from the Fed since it began hiking in Mar 2022, marking a shift in its monetary policy approach since then.  “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed's post-meeting statement said.  Weekly jobless claims fell by 12K to 219K, which was far below estimates, according to labor market data.  The better-than-expected figure helped reassure investors the economy is headed toward a soft landing.  The Federal Open Market Committee also indicated through its “dot plot” that it is anticipating another 50 basis points worth of cuts by the end of 2024.  It also suggested another full percentage point in cuts by the end of 2025, & a ½ point in 2026.  Elsewhere, the Bank of England announced it would hold interest rates steady after cutting rates for the first time in over 4 years in Aug.  The central bank cited “elevated” services inflation & a need for gradual easing of monetary policy.

10-year Treasury yield jumps as investors bet there’s no recession ahead

Sales of previously owned homes fell 2.5% in Aug from Jul, to a seasonally adjusted annualized rate of 3.86M units, according to the National Association of Realtors (NAR).  That's slightly lower than expected.  Sales were 4.2% lower than Aug 2023 & marks 3 straight months of sales below the 4M mark, annualized.  This count is based on closings — contracts that were likely signed in late Jun & Jul, when mortgage rates started coming down but were not as low as they are today.  The average rate on the popular 30-year fixed loan was slightly over 7% in mid-Jun & then fell steadily to 6.7% by the end of Jul, according to Mortgage News Daily.  “Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said Lawrence Yun, NAR's chief economist.  “The home-buying process, from the initial search to getting the house keys, typically takes several months.”  The inventory of homes for sale is improving slightly.  There were 1.35M units for sale at the end of Aug, up 0.7% from Jul & 22.7% year over year.  It is still, however, just a 4.2-month supply.  A 6-month supply is considered balanced between buyer & seller.  “The rise in inventory — and, more technically, the accompanying months’ supply — implies home buyers are in a much-improved position to find the right home and at more favorable prices,” Yun added.  “However, in areas where supply remains limited, like many markets in the Northeast, sellers still appear to hold the upper hand.”  Tight supply is keeping the pressure on prices.  The median price of an existing home sold in Aug was $416K, up 3.1% from the same month in 2023, the highest price ever for Aug.  Since it's a median, though, part of that gain is skewed toward what was selling in Aug.  Sales were up significantly for homes priced above $750K, but down for anything priced below $500K.  Mortgage rates continued to fall in Aug & Sep, with the 30-year fixed now sitting at 6.15%, the lowest in roughly 2 years.

August home sales drop more than expected, as prices set a new record

US crude oil rose nearly 1%, after the Federal Reserve slashed interest rates for the first time in more than 4 years & as tensions in the Middle East continued to escalate.  The Fed surprised the market with a bigger-than-expected cut of a ½ percentage point.  Oil prices, however, closed slightly lower as rate cuts had largely already been priced in.  West Texas Intermediate Oct contract was $71.54 per barrel, up 63¢ (0.9%) & YTD US crude oil is little changed.  Brent Nov contractwas $74.37 per barrel, up 72¢ (1%) & YTD, the global benchmark is down 3.5%.  Crude futures are on the rebound again as tensions soar between Israel & the Iranian-backed militia group Hezbollah in Lebanon.  Prices are also finding support after US oil stockpiles fell by 1.6M barrels last week.  Pagers & walkie-talkies used by Hezbollah exploded this week, killing dozens & wounding thousands across Lebanon.  US officials said that Israel was behind the pager attack.  Israeli Defense Minister Yoav Gallant said that his country's focus is shifting from Gaza to the northern border with Lebanon, where some 60K Israelis have been evacuated, as a “new phase” of the war begins.  Oil market analysts have warned for months that an all-out war between Israel & Hezbollah, which until now have traded rocket fire, could force OPEC member Iran to directly intervene, raising the risk of disruptions to Middle East crude oil supplies.

U.S. crude oil rises nearly 1%, trades above $71 per barrel after Fed rate cut

The stock market soared amid growing optimism that the Federal Reserve's jumbo interest-rate cut will deliver a soft landing for the US economy.  Investors were encouraged after taking a closer look at the Fed's decision to kick-start its new rate cycle with 50 basis point cut.  Initially the gauges swayed around before closing lower.  After absorbing Chair Jerome Powell's message that a deep cut in a relatively strong economy will ultimately fend off the risk of recession they viewed it as a sign of faith, not panic, about current conditions.