The Nasdaq is up nearly 3% and the other indices are also celebrating the Fed's supersized rate cut yesterday. Now the Monday morning quarterbacking begins. What about next time? We had forecast 25 this time, and the Fed cut 50. So adjusting, we still see two more cuts this year. But we're adding one more cut to next year, for a total of three cuts in 2025. So five in total, all in the size of 25 bps.

The Federal Reserve wrapped up its latest Open Market Committee meeting yesterday and, as expected, lowered the current federal funds rate for the first time since 2020. But the central bank surprised some by taking the rather extraordinary step of reducing the rate by 50 basis points (bps), as opposed to the normal 25-basis-point move. Why the big cut? In our opinion, the Federal Reserve is clearly shifting its focus from fighting inflation to protecting the employment environment. Since the Fed started raising rates in 2021, CPI inflation has fallen from readings above 9.0% to readings below 3.0% -- and continues to edge toward the central bank's goal of 2.0%. Meanwhile, the unemployment rate has increased from 3.4% to 4.1% and monthly payrolls gains have slowed from 300k to 100k. Indeed, the Fed has lifted its year-end target for the unemployment rate to 4.4% from 4.0% last June. Based on the Fed's decision, its commentary, and the forecasts of its governors, we are making adjustments to our interest-rate outlook. We are maintaining our forecast for two more rate cuts in 2024 -- both of which we think will be 25 basis points. We are adding a forecast for an additional rate cut in 2025, bringing our estimate to three cuts for the year. Those cuts will bring the fed funds rate down toward 3.5%, which, assuming inflation continues to drop toward 2.0%, will return real, inflation-adjusted rates back toward historical averages.

The Federal Reserve cut the fed funds rate by 50 basis points (bps), energizing buyers for about 45 minutes yesterday. Then, as often happens, investors faded the first move, stocks were lower into the close, and currently the futures market is through the roof. End of day, the Fed's target is now 4.75%-5.25%. By the last 2024 meeting on December 18, there is a 50% probability that the funds range will be 4.00%-4.25% and a 32% chance the target will be 4.25%-4.50%. Treasury yields across the curve ticked higher, mostly in the five- and 10-year yields, which rose 30 to 40 bps. Market yields have been falling since April in anticipation of a slowing economy and the rate. We are now in the last half of September, and the next two weeks historically are the worst of the year for stocks. Did we front-load those losses during the first four trading days of the month or does the market have pain ahead? Short term, it's hard to get a good feel for what will play out. But we feel confident that the fourth quarter will be kind to investors. The last quarter of the year, especially the months of November and December, are typically two of the strongest months of the year. The other nagging question (and keeping in mind that there are multiple economic reports ahead, 3Q EPS reports in October, and a presidential election in November) is the following. What will lead the market into the end of the year? Over the past three months, leadership has come from Real Estate, Utilities, Financial, Consumer Staples, Industrials, Healthcare, and Consumer Discretionary. That is a broad group. Information Technology is the only sector that has been down over the past three months. (Mark Arbeter, CMT)

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

The Vickers Top Insider Picks is a daily report that utilizes a proprietary algorithm to identify 25 companies with compelling insider purchase histories based on transactions over the past three months.

Rates Begin to Come Down July, August, and September all featured some rough patches for stocks, and yet the S&P 500 is flirting with all-time highs. The stock market is nowhere near a consensus, as some investors fear the sky (recession) is falling while others are happy that the four-year wait for a Fed rate cut is finally over. Bulls argue that a broadly diversified market appears well-positioned to carry year-to-date gains into year-end. Bears counter that diversification historically has not worked in a falling market (think 2008). What to make of it all? Into this uncertain environment comes the presidential election along with control of the House and Senate. The stock market often has its worst year of the four-year cycle in the actual election year, yet 2024 is a better-than-average year, so far. With the election too close to call, investors are rolling into fall 2024 hopeful but apprehensive. The 'Three Es' as the New Hierarchy Throughout 2023, we reduced the stock market's challenges to a pair of vowels. Basically, the 'three Es' -- the economy, employment, and earnings -- were seeking to offset the negative effects of the 'two Is' -- inflation and interest rates. In 2023, earnings were the laggard, employment was surging, and the economy was uneven. Meanwhile, inflation and interest rates were familiar but weakening foes in 2023. How are our battling vowels faring in 2024? In fall 2024, the jobs economy is plainly cooling. August nonfarm payrolls were much worse than expected and, along with prior-month revisions, paint a weakening jobs-demand environment into 2025. Revisions announced in August 2024 suggested that monthly data had overstated prior-year jobs creation by over 800,000. At the same time, unemployment remains subdued at 4.2%. Weekly jobless claims are in the 225,000 area, off from the 200K range a year ago but not at the 300K level that would trigger recession alarm bells. Wage growth is slowing, which is helping reduce the annual change in inflation while keeping workers' wages running ahead of higher prices. Earnings, by contrast, are growing. S&P 500 earnings from continuing operations, which comprise the earnings of companies making up about 85% of U.S. market capitalization, rose in high-single to low-double digit percentages for 2Q24 earnings season. That was the best earnings growth in nine quarters and the fourth straight quarter of year-over-year EPS growth. Revenues rose in mid-single-digits in 2Q24, which we think mainly reflects a 'normal' supply chain -- not the shortage crisis of 2022, nor the over-supply glut of 2023. About four-fifths of companies beat EPS expectations, better than the 10-year average; and the magnitude of that beat was also above average. Two sectors -- Materials and Energy -- disproportionately weighed on earnings as both faced tough comps and slack demand. Comparisons get easier going forward and demand looks better for these sectors, contributing to our confidence that second-half 2024 EPS will grow in low-double-digits year over year. We continue to forecast low-double-digit EPS growth for all of 2024, followed by high-single-digit growth in 2025. That could easily turn into double-digits if rate cuts are stimulative, as investors are hoping they will be. Among the 'Es,' the economy has been the Steady Eddie in this environment. GDP did slip to 1.4% in 1Q24 as the consumer experienced a post-holiday spending hangover. But GDP rebounded to 3.0% in 2Q24, reflecting nearly across-the-board strength. Personal consumption expenditures rose by 2.9%, doubling the 1Q24 performance. Strength was broad-based across durable and non-durable goods as well as consumer services. Non-residential fixed investment, a proxy for corporate capital spending, rose 4.6% in 2Q24, consistent with 4.4% growth in 1Q24 and growth in the 4.5%-5.2% range across 2023 and 2022. Companies continue to invest in the future, perhaps anxious to avoid being left behind in the age of generative AI. Government spending also has been a consistent low-level contributor to GDP, rising about 2.3% in 1H24. The one ongoing laggard in the GDP accounts continues to be housing. Although mortgage rates have come down from 2023 peaks, they remain well above the rates prevailing from 2020 through most of 2022. A majority of mortgages are below 4%; and many homes owned by boomers no longer carry mortgages. Until interest and mortgage rates come down to something like that magic 4%-5% level, industry watchers fear that housing is frozen. A chart of home ownership since 1960 compiled by the St. Louis Fed show that ownership usually runs between 64% and 66% of households in the U.S., with some outlier periods. Between 1960 and 1995, home ownership was remarkably steady as the level never exceeded 66% and never fell below 63%. According to Argus Fixed Income Strategist Keven Heal, U.S. government efforts to encourage more people to own homes pushed ownership higher beginning in the mid-1990s. Home ownership peaked above 69% in the 2005-07 period -- right before the sub-prime crisis that triggered the housing collapse and the Great Recession. Home ownership fell below 63% in the mid-2010s, spiked to 68% in the pandemic year of 2020 (as Millennials migrated to the suburbs), and currently sits near the long-term average at 65.5%. Millennials who do not yet own homes would love to see housing prices come down, but the two-thirds of Americans who own their homes are a powerful buffer against lower prices. The 'Two Is' On the Run Returning to our other vowels, inflation is in retreat, allowing the U.S. Federal Reserve to start its long-awaited rate-cutting cycle. On 9/18/24 at 2 PM, the Federal Open Market Committee (FOMC) announced that it was cutting central tendency in the fed funds rate by 50 basis points. The rate cut was perhaps the most anticipated in history. In decades past, Fed rate cuts were noted only by economists, and consumers were oblivious. In our media age, even TikTok influencers weighed in the Fed move, and consumers likely grew a little more optimistic about buying that pickup truck, boat, or new house. The Fed felt free to pivot to accommodative from restrictive monetary policy thanks to its success in bringing down inflation. The Fed's most closely watched inflation gauge is the annual change in the core PCE price index. For August, core PCE prices rose 2.6% year over year, one tick better than consensus and in line with the revised July price change. CPI data reported earlier in the month further confirmed that inflation continued to moderate year over year, both on an all-items and core basis. Speaking at the Jackson Hole Economic Symposium in August, Fed Chairman Powell signaled that the Fed has shifted its concern from inflation to the potential for a broad softening in the economy. We are thus not surprised that the Fed elected to cut rates before the U.S. economy had returned to its 2% inflation target. In this case, close enough was good enough. Conclusion The stock market had some very jittery phases in July, August, and September. The election is looming, there has been a second attempt on former President Trump's life, and polls suggest an election outcome that is too close to call. For those and other reasons, the VIX volatility index remains elevated. This measure of market volatility currently is in the upper-teens range, closing on 9/17/24 at 17.61. The VIX briefly spiked to the mid- 30s in August following a weak July jobs report. Keep in mind that this fear and volatility gauge spent nearly all of the late-2020 through mid-2024 period below 12. Recession fears also are likely contributing to the VIX spike. But one key 'recession indicator' appears to be unwinding. The two-year Treasury yield climbed above the 10-year yield in April 2022. Economists and strategists have long argued that this inversion signals an economy out of joint, as rational investors should not be willing to accept lower returns on longer-term fixed-income investments than on shorter-term investments. The financial press, citing precedence, was filled with warnings that recession was imminent -- in 2023. The more than two-year inversion in the twos-10s spread finally broke in August 2024. As of mid-September, the two-year yield was at 3.56%, and the 10-year yield was at 3.65%. We do not expect the yield to 're-invert' now that the Fed has started its rate-cutting cycle. Amid election uncertainty and recession fears, bulls have one mantra: the era of Fed rate cuts has begun.

At midday, the major indices are still flat ahead of the big rate call coming today at 2 pm. Backseat quarterbacks have been placing odds on a 25-basis-point cut or a 50-basis-point cut. It feels like Super Bowl Sunday. We are sticking with our forecast of 25. We believe that a larger cut might imply unclear signals on the state of the economy. Our rate watcher Kevin Heal observes, 'The Fed was measured on its way up, raising rates. We expect it to be just as measured on the way down, lowering rates.'

When it comes to focusing on sectors of the S&P 500, we think it makes sense to focus primarily on a few key sectors that can actually make a difference in terms of earnings and portfolio performance. As an example, the Real Estate sector, which accounts for about 2% of S&P 500 capitalization, is expected to contribute only 1% of S&P 500 EPS during the during the upcoming 3Q24 EPS period (which will kick into gear next month). The Materials sector is another 2% market weight that generates a thin 2% of total earnings. We don't think clients should be spending a lot of time on deep dives trying to get these sectors right. The groups that really make a difference are going to be Information Technology, which is expected to account for 22% of the earnings (and grow at a 15% rate year over year); and Financial and Healthcare, which are expected to account for 18% and 13%, respectively. Perhaps not surprisingly, these are three economic sectors in which the United States enjoys competitive advantages versus other nations. At the next tier, the Industrial, Consumer Discretionary, and Communication Services all appear in line, with market cap weights and earnings contributions in the 9%-10% range. We note that the Energy sector punches above its weight, accounting for less than 4% of total market capitalization but generating 6% of S&P 500 profits. Other expected double-digit EPS growers in 3Q include Healthcare and Communication Services.

For the first time since late 2023/early 2024, WTI (at around $71.30/barrel) is starting to look interesting for a number of reasons. Crude fell to $68 in December 2023, drifted sideways-to-higher until February, and then rallied to almost $88 by April. Since then, oil has been in what looks like an ABC or three-wave decline, dropping to a recent low of $65 on September 10. That was the lowest price since May 2023. After peaking in March 2022 just above $130, crude has been range trading between $64 and $95 for the past two years. Back in late 2023/early 2024, the Commitment of Traders (COT) data on oil became very bullish for the first time since the summer of 2023, with commercial hedgers having a relatively high net futures position and large speculators having a low net futures position. That same positioning has occurred over the past couple of weeks. In the very near term, $72 is important resistance as a jump above that price would represent a false breakdown, would break the bearish trendline off the peak since August 12, and would represent a 38.2% retracement of the decline since early July. There are many pieces of potential chart, moving-average, and retracement resistance from $72 to $80. The recent low of $65 is key chart support. Sentiment toward WTI is close to pessimistic, another potential contrarian positive. One of the few negatives is that October and November are the worst two months for oil when looking back over 30 years. Still, seasonality historically is supposed to be bullish from March to September -- and it certainly wasn't in 2024. (Mark Arbeter, CMT)

If one were to ask the average investor to name the leading S&P 500 sector this year, Information Technology might very well be the most-common answer, even after the recent tough few months. But that answer would be wrong, as the Utilities (XLU) sector is leading the pack so far in 2024, with an incredible 26% return as of this writing (which doesn't include dividends). Should the masses say that semiconductor stocks represent the leading industry, they would be correct. For 2024, XLU has soared 26%; Communication Services 20%; Financial 19%; Consumer Staples 18%; Healthcare, Industrials, Information Technology, and Real Estate about 15%; Materials 9%; Consumer Discretionary 8%; and Energy 4%. So there are very broad gains, unlike in recent years. One could try to make the case that the leadership leans defensive, but many stocks in Utilities have surged due to the coming increased power demand from the buildout in data centers and AI. Meanwhile, Healthcare, also considered defensive, has been boosted by weight-loss drugs, which reflects R&D as well as innovation. Strength in Utilities has been led by conventional electricity stocks the often have large capitalization, such as NEE (+44%), SO (+31%), CEG (+69%), AEP (+30%), and VST (+123%). Communication Services also is led by large-cap 'utility type' issues such as VZ (+24%) and T (+35%). Unfortunately, Utilities make up a mere 2.5% of the S&P 500, Consumer Staples 6%, and Real Estate 2.4%. The monster in the room remains Information Technology, with a 32% weighting. That is almost equal to the next three largest sectors (Financial, Healthcare, and Consumer Discretionary) combined.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

The Vickers Top Insider Picks is a daily report that utilizes a proprietary algorithm to identify 25 companies with compelling insider purchase histories based on transactions over the past three months.