All eyes on the FOMC this week as it meets on Tues/Wed to discuss what is expected to be an additional 25bps rate cut to Fed funds (3.625% mid point), which will be announced Wed. afternoon. The Fed will also release its Summary of Economic Projections which will provide its thoughts on future rate cuts through 2026 as traders are pricing in 2-3 more rate cuts in 2026 (CME) on the belief that Hassert will be the new Fed Chair and pursue dovish policy.
Welcome to December - a historically strong month for equity returns that will seek to add to the SPX YTD gain of ~ 18%. If so, this will mark 6 of the last 7 years that the SPX has gained in excess of 18%...a remarkable run given the average return of the SPX is ~10% since 1957.
They're back...meaning government workers, as well as missing pieces of economic data, including the Non Farm payrolls report for Sept. on Thursday. Monthly job adds data has been downbeat over recent reports with May (19K), June (-13K), July (79K), and August (22K) averaging 27K monthly adds which contrasts with the Jan - April average of 123K job adds.
Earnings season slows for the SPX with only 8 companies set to report with CSCO and AMAT providing further commentary on the tech/AI trade (along with CRWV, not in SPX) while DIS and IPG will speak to consumer strength in media and advertising. SPX companies continue to beat eps estimates with 91% besting consensus, better than the 5-year average of 78% and the highest since Q321, while earnings are expected to advance 13.1% y/y, marking the 4th consecutive double-digit earnings gain and the 9th consecutive y/y earnings gain for the SPX (Factset).
The government shutdown begins its 5th week and is just two days shy of the longest on record at 35 days (2018). Election day on Nov. 4th will not impact operation of financial markets.
News of a trade agreement between the U.S. and China is percolating and will likely help spur the market higher - especially in light of the almost certain (96.7%, CME) expectations for a Federal funds rate cut of 25bps following the FOMC meeting. Mag 7 earnings are front and center with META and MSFT on Wednesday, followed by AMZN on Thursday, with results scrutinized for clues on future AI-related capex spend as well as commentary on expanding use cases and ROI for AI in the general economy.