By Bill Hornbarger, Chief Investment Officer
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Three Things to Watch
- There are 15 Federal Reserve (Fed) appearances this week, including Chairman Powell on Thursday. Traders will be curious to hear more on the rationale for a 50-basis-point cut (versus a smaller quarter-point move) and any hints on guidance for monetary policy going forward.
- The economic data calendar includes readings on consumer confidence and consumer sentiment, new and pending home sales, regional Fed bank activity indices, and the Fed’s favored inflation measure, core personal consumption expenditures (PCE). Overall, PCE is expected to continue to decelerate to 2.3%, while core PCE is expected to tick up slightly to 2.7%. The Fed’s comments after last week’s rate cut indicate the focus is shifting from fighting inflation to employment. On a three-month annualized basis, core PCE is below the Fed’s 2% target.
- The markets will also see income and spending data and more corporate earnings with Costco, AutoZone and KB Homes leading the way.
Three Things to Know
- The median U.S. mortgage payment fell 2.7% year-over-year in September to $2,534/month, posting the largest decline since May 2020. Since the April peak, the median payment is now down $300/month. This comes after mortgage rates decreased to 6.2%, their lowest level in 20 months. However, mortgage payments are still 7% and 53% above 2022 and 2021 levels. As a result, pending home sales continue to deteriorate, declining 6.9% year-over-year in one of the largest drops since October 2023. (Source: The Kobeissi Letter)
- Unrealized losses on investment securities for U.S. banks reached $512.9 billion in the second quarter (Q2) of 2024. This is seven times higher than at the peak of the 2008 Financial Crisis. Q2 2024 also marked the 11th consecutive quarter of unrealized losses as interest rates continued to pressure the economy. Bank of America, the second-largest lender in the United States, now accounts for $110.8 billion of held-to-maturity securities with unrealized losses, or 20% of the total. Meanwhile, the number of banks on the FDIC Problem Bank List increased to 66 in the first quarter of 2024, or 1.5% of the aggregate. (Source: The Kobeissi Letter)
- Last week’s 50-basis-point cut by the Fed was the first cut in more than four years. In March 2020, the Fed cut rates 125 basis points over the course of two meetings to combat the effects of the coronavirus. (Source: BFE)
The above information reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security mentioned.