Key factors driving market sentiment ahead of the bell on 9/18/24
3min read U.S. equity futures are signaling a relatively stable open as all three major indices—the S&P 500, Nasdaq 100, and DJIA—are 0.1% above fair value. Investors are displaying cautious optimism, holding onto positive momentum while awaiting the Federal Reserve’s critical policy decision this afternoon.
The futures market is essentially in a holding pattern as participants try to interpret a mixed bag of economic data and market signals, with the key driver being the Federal Open Market Committee's (FOMC) interest rate decision at 2:00 p.m. ET.
Key Factors Driving the Market
One of the primary factors keeping the markets in check is the anticipation surrounding the FOMC's announcement. The central question is whether the Fed will deliver a 25 basis points rate cut or opt for a more aggressive 50 basis points reduction.
This uncertainty is tempered by expectations that the Fed’s Summary of Economic Projections, to be released alongside the decision, will offer clearer insight into the committee’s longer-term outlook. Market participants will also be closely watching Fed Chair Jerome Powell’s press conference at 2:30 p.m. ET for additional clues about the future trajectory of monetary policy.
In the housing sector, fresh data from the Mortgage Bankers Association reveals a sharp rebound in mortgage applications. The weekly index surged 14.2%, driven by a 24% jump in refinance applications and a 5% increase in purchase applications.
These figures suggest that the recent pullback in mortgage rates has revived interest in both refinancing and homebuying activity, offering a positive signal for the broader housing market.
Political developments are also shaping the market landscape. The House is set to vote on a continuing resolution to extend government funding for another six months, with the vote likely to clear the House but face significant challenges in the Senate.
Additionally, former President Donald Trump made headlines by reiterating his pledge to reinstate the State and Local Tax (SALT) deduction if re-elected, which could influence sentiment among higher-income voters in high-tax states.
On the international front, Japan reported significantly weaker-than-expected import growth for August, up just 2.3% year-over-year, compared to an anticipated 13.4%. Exports also missed expectations, rising 5.6% compared to the 10% forecast.
These weaker-than-expected numbers reflect sluggish global demand and add to concerns about the global trade environment, especially as Japan continues to navigate a challenging economic recovery.
Corporate News and Brokerage Actions
BlackRock (BLK) confirmed a new partnership with Microsoft (MSFT), Global Infrastructure Partners, and MGX, with the consortium set to unlock $30 billion in private equity capital through AI-driven initiatives.
This partnership is significant in that it taps into two major growth trends: artificial intelligence and infrastructure investment, both of which are seen as critical drivers of long-term economic expansion. BlackRock’s focus on AI could position the firm to capitalize on transformative tech developments, offering a new avenue for growth as traditional financial sectors mature.
General Mills (GIS) delivered slightly better-than-expected earnings, beating estimates by $0.01 per share, while revenue came in line with expectations. The company reaffirmed its fiscal year 2025 guidance, signaling confidence in its ability to navigate rising costs and shifting consumer trends.
While the earnings beat was modest, General Mills' reaffirmation of guidance may instill a degree of confidence in investors, particularly as the broader consumer staples sector contends with inflationary pressures.
Brokerage research calls highlighted several notable upgrades, including names like AMBC, BAK, EXR, GEHC, IHG, NMIH, SIRI, SLG, UBSFY, VFC, and VSCO. These upgrades suggest that certain sectors and stocks are gaining traction with analysts, particularly those positioned to benefit from either operational efficiencies or broader economic trends.
Conversely, downgrades in companies like EW, INCY, POR, and RMD suggest that certain challenges, whether operational or sector-specific, are weighing on analyst outlooks.
Commodities and Treasury Market
In the commodities market, crude oil is down 0.8% to $70.60 per barrel, reflecting a slight pullback amid ongoing concerns about global demand. Meanwhile, natural gas futures are up 1% to $2.35 per mmbtu, signaling some upward pressure as the market prepares for seasonal shifts in energy consumption.
Copper futures are also showing strength, up 0.7% to $4.30 per pound, driven by stable demand and supply concerns, particularly in light of weaker global economic data from key trading partners like Japan.
In the bond market, Treasury yields are inching higher. The 2-year note yield is up 3 basis points to 3.62%, and the 10-year note yield has risen 4 basis points to 3.68%.
These moves suggest that bond investors are positioning for the possibility of a more hawkish outcome from the Fed, or at least for some indication that the central bank will remain data-dependent in its approach to managing inflation.
The U.S. Dollar Index is down 0.1% to 100.84, reflecting a slight weakening of the greenback against major currencies, likely as traders anticipate the upcoming FOMC decision and its potential impact on future rate differentials between the U.S. and other economies.
Economic Data Releases
Today's key economic data includes August housing starts and building permits, which will be released at 8:30 a.m. ET. These figures will offer a clearer picture of the health of the housing market, particularly as mortgage rates and affordability remain key concerns for homebuyers.
At 4:00 p.m. ET, the August Net Long-Term TIC Flows will be reported, which will provide insight into foreign investment in U.S. assets, a key factor in understanding the strength of demand for U.S. Treasuries and other securities.
Conclusion
In summary, the market is in a phase of cautious optimism as participants await key decisions from the Federal Reserve. The housing market shows signs of recovery, while geopolitical and economic uncertainties continue to weigh on global sentiment.
With oil prices pulling back slightly and BlackRock’s AI partnership signaling new growth avenues, there are several dynamics at play that could shape investor sentiment in the coming days.
However, the FOMC decision will likely dominate the narrative for the rest of the week, as traders seek clarity on the Fed’s path forward in managing inflation and supporting economic growth.