Friday, October 18th, 2024

We’re in a curious holding pattern of sorts in this morning’s pre-market trading. Investors are feeling the ceiling just above their heads currently, with the Dow still in the midst of setting new all-time closing highs, and the S&P 500 not far behind. These two indexes and the Nasdaq are all looking to close today for the sixth up-week in a row.

Currently, the Dow is -51 points, while the S&P is +15 and the Nasdaq +120 points. We do see some impactful earnings and economic reports, but nothing we expect will tilt the balance of market sentiment today. Bond yields are also fairly stagnant at +4.087% on the 10-year and +3.965% on the 2-year.

Housing Starts and Buildings Permits Mixed

Headline Housing Starts for September were slightly above estimates: 1.354 million seasonally adjusted, annualized units were just ahead of the 1.35 million expected, down a tad from the revised 1.361 million the previous month. Even though historically still pretty low, these numbers represent the near-term high point in new housing starts.

Building Permits — a proxy for future Starts — was slimmer than expected: 1.428 million seasonally adjusted, annualized units missed the 1.45 million estimate, and also missed the slight downward revision in August to 1.47 million. Mortgage rates ticking back up last month — unexpected, seeing as the Fed is cutting interest rates — helped permits holders get a little shy.

Single-family starts have picked up again: +2.7% month over month and +5.5% year over year, according to CNBC’s Diana Olick. It’s the Multi-family construction, which had led the homebuilding market for a while, that’s now experiencing some oversupply issues. But Permits look a little weaker on the single-family side. Much of this static can be removed with more demonstrable Fed policy.

Will the Fed Be Forced to Halt Rate Cuts?

Currently there is some question whether the Fed will continue to move interest rates down an additional 50 basis points (bps) from now til the end of the year. While stronger economic numbers in Retail Sales and elsewhere seem to suggest that the economy does not need drastically lower interest rates to perform well, the Fed is currently agnostic on the labor market going forward.

This looks to be figured out ahead of the next Fed meeting, with an earlier Employment Situation report for October being released Friday, November 1st. If we see another +254K headline number for new jobs filled, this would increase the chances the Fed will take the promised 25 bps rate cut the following week either off the table completely or close to it. If monthly jobs totals revert to their more anemic near-term levels of the past few months, consider the rate cut a lock on November 7th.

(Please note: this article has been corrected from an earlier published version, where I mistakenly assumed the Employment Situation report would not come out until November 8th — after the next Fed meeting. Big difference.)

Even if jobs numbers do swing back higher, this would not exactly be a “Chicken Little” moment. And if the Fed were to halt rate cuts there for a while, we’d still be in the +4.50-4.75% range, which isn’t exactly giving away free money. The Fed really doesn’t want to have to reverse course, but there seems to be growing sentiment that the Fed may hold steady in December and not make another cut. To be continued…