“The best time to plant a tree was twenty years ago. The second best time is now.”
-Chinese Proverb
Here’s what you need to know this week:
- Stocks reach new all-time highs on strong economic data
- Investors debate whether the Federal Reserve will cut rates in November
New Highs
Stock markets climbed to new all-time highs over the last week on the heels of encouraging economic reports and a strong start to third quarter earnings season. The S&P 500 and Dow Jones both notched new all-time highs on Monday while the tech-heavy NASDAQ sits less than 2% below its own all-time high. Last Thursday we received the Consumer Price Index (CPI) report for the month of September, and the report showed monthly inflation at 0.2% and annualized inflation at 2.4%[1]. While this is slightly higher than the 2.3% that analysts expected, it is still lower than August’s rate of 2.5% and the lowest annualized print since February 2021.
The next day we received the Producer Price Index (PPI) report, which is similar to CPI but instead measures inflation for manufacturing. September’s PPI report showed corporate inflation as flat over the last month and 1.8% annualized, both slightly lower than analyst’s estimates[2]. These two reports taken together indicate that inflation is still returning to historically normal levels even with the Federal Reserve’s 50 basis point (0.50%) interest rate cut last month.
The last encouraging data point was the start of third quarter earnings season last week, with the big banks among the first companies to release their earnings. The banks posted better-than-expected earnings, which is usually a sign of a strong earnings season due to banking’s heavy involvement in corporate operations. For the moment it appears that markets have calm seas ahead, although questions still linger about the Federal Reserve’s next decision.
Fed Uncertainty
The next meeting of the Federal Open Market Committee (FOMC), the governing body that determines interest rate policy, comes on November 6th-7th, immediately after the presidential election. Markets are still largely complacent about the next meeting, although last week’s data introduced a little uncertainty as to whether the Fed will actually cut rates next month.
First was the aforementioned CPI report. While the report was only slightly higher than estimates, an upside inflation surprise is the last thing the Fed wants to see when they are so close to reaching their goal. Second was the September nonfarm payrolls (NFP)report which showed the US economy adding 254,000 jobs and the unemployment rate falling to 4.1%[3]. While this is obviously good news for the economy, it may also strengthen the case against another interest rate cut. The Federal Reserve’s dual mandate is to control inflation and unemployment; with inflation falling by less than expected and unemployment staying low, some members of the FOMC may argue against a rate cut at the next meeting.
The bond market has taken notice. As of writing, the market is assigning an 83% chance of an interest rate cut and a 17% chance of no cut in November[4]. A strong majority of investors still anticipate a cut next month, but 83% is a noticeable decline from the 90%+ probability from just last week. This is likely not a cause for concern yet, but it’s something to keep an eye on.
What Else
- Hurricane Milton made landfall as a category 3 hurricane, thankfully causing less damage than what some meteorologists predicted
- The US sent an advanced missile defense system to Israel to help Israel defend itself from attacks from both Iran and Hezbollah
- The price of gold hit another all-time high on Tuesday at $2,685/oz
- OU plays South Carolina this Saturday at 11:45 AM on the SEC Network
- OSU plays 13th ranked BYU this Friday at 9:15 PM on ESPN
What We’re Reading
SpaceX completed their first ever “catch” of a returning starship using a specially designed tower in southeastern Texas. This catch marks another significant milestone in the advancement of reusable rockets. Click below to read about this mission as well as additional links to footage of the returning rocket:
What’s Happening Downtown
The Gaylord-Pickens Museum is hosting Fall Y’all today through Friday, 10:00 AM to 2:00 PM each day. This family-friendly event is free to attend and features fall-themed crafts, story time and art activities. Click below to learn more:
Written by: Kane Ogle, CFP®
Steve Beck, Amber Eduvigen, CFP®, Kane Ogle, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess, Anne Boone
Sources: [1] CNBC [2] CNBC [3] Reuters [4] CME FedWatch