S&P 500 Retreats as Wall Street Bear Takes Away Expected Future Rate Cuts

It’s a strange time for the stock market. It’s almost like one of Aesop’s fables or a fairy tale, except featuring Wall Street’s bulls and bears, in which something the bear has done has affected the trajectory of stock prices.

The S&P 500 (Index: SPX) pulled back as the prospect for faster rate cuts dimmed during the final trading week of October 2024. The index fell some 1.3% to end the week at 5,728.80.

The CME Group’s FedWatch Tool anticipates a 0.25% rate cut on 7 November 2024. After that however, expectations for future rate cuts have changed. Instead of additional 0.25% cuts at 6-to-12-week intervals, the tool now projects quarter point rate cuts will take place at an average of 12-to-18-week intervals, a much slower pace.

That change in outlook hammered stocks that had recently rallied on the expectation of interest rates falling at a faster pace, which in turn pulled the trajectory of the S&P 500 into the lower portion of the redzone forecast range on the alternative futures chart. Here’s the latest update of that chart, which also shows we’ll reach the end of the redzone forecast range later this week.

Meanwhile, other stuff happened during the trading week that was. Here are the week’s marking-moving headlines, which seasoned investors will recognize have little to nothing to do with the U.S. elections in this upcoming week.

Monday, 28 October 2024

• Signs and portents for the U.S. economy:

• Oil slips nearly $4 a barrel after Israel shows restraint in strikes on Iran

Bigger trouble, bailouts developing in China:

• Some companies change tack in China with no recovery in sight
• China launches new lending tool before year-end loan expiry

BOJ minions get a political problem to deal with as they are told to do nothing with interest rates:

• Japan’s political shakeup complicates BOJ, fiscal policy outlook

• BOJ on quest for better communication as more rate hikes loom

Japan’s kingmaker opposition warns against early BOJ rate hike

ECB minions thinking they don’t need to hurry to deliver more rate cuts:

• No urgency for ECB to speed up policy easing, Wunsch says

Dow, S&P, Nasdaq end higher, with Big Tech earnings, payrolls data on the horizon

Tuesday, 29 October 2024

• Signs and portents for the U.S. economy:

• Oil prices climb as US reserve bid lends support

• US seeks up to 3 million barrels of oil for emergency reserve

Fed minions being sent message to keep rate cuts going:

• Fed’s rate cut revives small business optimism and plans to borrow
• Deteriorating office loans stress US regional banks’ CRE portfolios
• Federal Reserve to cut rates by 25 basis points at next two meetings: Reuters poll

Bigger trouble, stimulus developing in China:

• China’s factory activity likely contracted in Oct for a sixth month – Reuters poll
• Exclusive: China considers over $1.4 trillion in extra debt over next few years

BOJ minions getting mixed picture of Japan’s economy:

• Japan continues to see moderate economic recovery, cuts factory output view

Bigger inflation developing in Eurozone:

• More companies planning price hikes in Germany, survey finds

Nasdaq notches record close ahead of Alphabet results; S&P rises while Dow slips

• Nasdaq hits record high as Alphabet earnings beat estimates

Wednesday, 30 October 2024

• Signs and portents for the U.S. economy:

• US shippers avoid East Coast ports on risk of second strike
• Oil rises on US stockpiles drawdown, OPEC+ mulls output hike delay
• US 30-year mortgage rate surges to 6.73%, highest since July

Bigger stimulus developing in China:

• China’s looming fiscal package set to stabilise rather than boost growth
• China stimulus should go hand in hand with reforms, ex c.bank adviser says

Not as bad as feared, but trouble still developing in Eurozone:

• Euro zone grows quicker than expected but outlook remains weak

• French economy expanded 0.4% in Q3 with Paris Olympics, INSEE says

ECB minions ready to declare victory over Eurozone inflation, say they don’t need to stimulate Eurozone economy any more:

• ECB’s inflation victory not far off, Nagel says

• ECB’s Lagarde: inflation should stabilise at 2% target in 2025

ECB does not need to stimulate economy, Schnabel says

Wall Street fails to hold on to gains, ends lower ahead of Microsoft, Meta earnings

Thursday, 31 October 2024

• Signs and portents for the U.S. economy:

• Oil gains more than $2 after settlement on reports Iran preparing Israel attack

• US oil output hits monthly record high in August, agency says

Fed minions expected to deliver two more rate cuts in 2024:

• Fed seen on track to cut rates next week and in December

Mixed growth signs, more stimulus developing in China:

• China’s manufacturing activity expands for the first time in six months
• China’s central bank injects cash via new outright reverse repos in October

Bigger trouble developing in Japan, Asia:

• Japan’s factory declines accelerate as demand sags, PMI shows

• Asia’s factory activity stagnates, taking shine off rebound in China

Japan’s economic growth likely cooled sharply in Q3 in test for BOJ policy: Reuters poll

Credibility-deficient BOJ minions boldly do nothing with interest rates:

• BOJ keeps policy steady, leaves door open for near-term rate hike
• BOJ Governor Ueda’s comments at news conference

ECB minions seeing more inflation in Eurozone, think their policies may push inflation too low:

• Euro zone inflation picks up, bolstering case for caution in rate cuts
• ECB’s Panetta warns rate policy mustn’t push inflation too low

Wall Street sells off on last day of October, as Microsoft, Meta rout tech stocks

Friday, 1 November 2024

• Signs and portents for the U.S. economy:

• US labor market staggers after blow from hurricanes, strikes
• Oil climbs 2% on reports of Iran preparing strike on Israel
• US manufacturing drops to 15-month low in October

China buying fewer U.S. farm goods:

• China pivot from US farm imports bolsters it against trade war risks

BOJ minions told to keep doing nothing for another six months despite warnings of factors that will boost inflation:

• BOJ should wait at least six months for rate hike, says opposition kingmaker
• Japan’s rising minimum wage likely to push up inflation, BOJ says
• Japan must avoid issuing debt to fund fresh spending, IMF says

Wall Street notches first two-week losing streak since August ahead of election, Fed

• Wall St closes higher as Amazon’s gains offset weak job growth

• Amazon’s improving retail sales boost Q3 profit, revenue beats estimates

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 plunged to +2.3% from the previous week’s forecast of +3.4% growth.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon showing a smiling bear taking a box away from a sad Wall Street Bull. The box has the words ‘Future Rate Cuts’ written on it”.