Options imply a +/-1.1% move in S&P 500 for the 18-Sept FOMC meeting; this compares to an average of +/-1.2% move priced into SPX ahead of FOMC meetings since the beginning of 2022.
Arguably, this is an unusually important FOMC meeting due to the expected start of a cutting cycle.
On average, the S&P 500 has moved +/-1.3% during FOMC events since the beginning of 2022, coming above options implied moves.
In the July FOMC meeting the index moved +/-1.6% vs. an options implied expectations for a +/-1.1% move.
Goldman’s economists expect the September FOMC meeting to be the start of the Fed easing cycle with a 25bp rate cut followed by two consecutive 25bp rate cuts in November and December, and an eventual terminal rate of 3.25-3.5%.
They see differing asset performances around the start of the easing cycle depending on what motivated the Fed cuts.
Goldman analyzed moves across stocks and ETFs during the first Fed rate cut in the prior 3 Fed easing cycles (18-Sep-2007, 31-Jul-2019 & 3-Mar-2020).
Rate cuts during the 2007 and 2020 easing cycles were associated with a recession while the 2019 cut was due to a growth scare.
In the tables below are the top 20 names that saw unusual moves during the prior 3 Fed easing cycles and for the 2019 cycle separately.
Financials and Tech were major movers during the beginning of the prior 3 Fed easing cycles while the 2019 cycle also saw unusual moves in Consumer Staples.
Q2 marks the 11th STRAIGHT quarter of unrealized losses on investment securities for banks, a streak never seen before. The number of banks on the FDIC Problem Bank List increased to 66 and represents 1.5% of total.
This is in addition to price Increases over last 4 years… CPI Medical Care: +7.8% CPI Apparel: +12.7% CPI Used Cars: +18.3% CPI New Cars: +20.5% CPI Food at home: +21.4% CPI Shelter: +23.4% CPI Food away from home: +25.4% CPI Electricity: +29.8% CPI Gas Utilities: +34.9% CPI Transportation: +38.8% US Home Prices: +48.0% CPI Auto Insurance: +52.4% CPI Gasoline: +53.5% CPI Fuel Oil: +54.9%
Don’t spill the wine, its too expensive under Biden/Harris/Powell.
Following last month’s modest miss in CPI which sparked speculation about a 50bps cut, which was then boosted by the jobs report miss and the huge downward revision, moments ago the BLS reported that – as only a handful of Wall Street strategists warned – CPI actually came in hotter than expected at the core level, rising 0.3% MoM vs expectations of a 0.2% print, with all remaining metrics coming in line, to wit:
CPI 0.2% MoM (or 0.187% unrounded), Exp. 0.2% – in line
And visually, here is the headline print, where the annual CPI increase dropped to just 2.5% from 2.9%, the lowest since February 2021…
.. and the core….
…. as goods deflation is stalling and may even print positive in the coming months, while core service inflation remains the biggest driver.
That was s the 51st straight month of MoM increases in Core CPI, and a new record high.
Under the hood, used car prices fell 1.0%, moderating from last month’s 2.3% drop, while airline fares jumped 3.9%, a big reversal to last month’s bizarre -1.2% drop. Car insurance costs jumped another 0.6%, after rising 1.2%; furniture prices dropped 0.3% reversing last month’s 0.3% rise.
Perhaps more worrying is the fact that while rent inflation has flatlined, shelter inflation posted its first increase since early 2023!
August Shelter inflation up 0.43% MoM and up 5.23% YoY vs 5.05% in July
August Rent Inflation up 0.39% MoM and up 4.97% YoY vs 5.09% in July
And the first monthly increase since March 2023 highlighted:
Last, but not least, and perhaps most ominous of all, is that while inflation refuses to be “killed” even as the Fed is about to start cutting rates, Supercore CPI rose 0.33% MoM, the biggest monthly increase since April, driven by continued acceleration in transportation services, which jumped the most in 5 months.
Finally, money supply growth is reaccelerating…
Which begs the question: how long until the Fed’s next easing cycle unleashes the Arthur Burns fed:
Putting it all together:
Underlying inflation unexpectedly picked up, as core CPI increased 0.3% from July, the most in four months, and 3.2% from a year ago
Only five of the 65 forecasts in Bloomberg’s survey called for a 0.3% increase in the core CPI. Almost everyone else was at 0.2%, and four had it at 0.1%. The five were right.
Shelter prices, the largest category within services, climbed 0.5%, the most since the start of the year and the second month of acceleration, defying widespread expectations for a downshift. Owners’ equivalent rent — a subset of shelter and the biggest individual component of the CPI — rose at a similar pace.
Airfares rose a hefty 3.9% in August after falling for the previous five months while costs for energy and used vehicles fell
Risk assets pumped and dumped and bond yields rose. S&P 500 futures dropped steeply immediately after the report came out, before paring losses. The yield on 10-year Treasuries advanced two basis points to 3.66%. The dollar wavered.
And while one can stick a fork in the market’s hopes for a 50bps rate cut (odds slumped from 30% to 20%… and from 50% last Friday)…
… the question remains: will the Fed really cut rates as shelter inflation inflects higher for the first time since 2023.
After last night’s ABC Presidential debate. Where Kamala acted like she was auditioning for part in the movie “Mean Girls” and the ABS moderators acted like pure Soviet-era Russian journalists.
The US government now pays out on average $3bn in interest expenses per day…If the Fed cuts interest rates by 1%-point and the entire yield curve declines by 1%-point, then daily interest expenses will decline from $3bn per day to $2.5bn per day.
Even worse, unfunded Federal liabilities total $219 trillion while total US assets total only $213 trillion. In other words, if China (for example) forced us to pay off our unfunded liabilities like Social Security, Medicare, etc., we couldn’t.
Notice how NO politician ever discusses The Federal goverment spending LESS money. Particularly not Joe “The fool on the hill” Biden or Kamala “Word salad Kammie” Harris.
The Biden/Harris illiusionomics was built on false hoods.
Look at pending home sales, now the LOWEST in history. The midwest led the decline in PHS at -7.8%.
Why? One reason is the illusion of a growing economy … that wasn’t growing organically. It was just Biden/Harris doling out trillions in handouts. Trillions of dollars in annual “consumer spending” is actually just government handouts being spent by people – it’s increased every month this year:
The University of Michigan Consumer Confidence survery rose for the first time in 5 months as inflation is cooling … for the moment. Hope for Fed rates cuts keeps the S&P 500 elevated.
Buying conditions for housing remains near historical lows. Great job Biden/Harris!
The problem, of course, is that The Federal Reserve has created massive asset bubbles with its money printing. And Harris is talking about taxation of UNREALIZED capital gains which is deflationary.
Harris really loves playing the inequality card. Sure, homeowners are seeing massive gains due to The Fed’s money printing, but so are landlords who rent their properties. Harris’ plan for unrealized capital gains tax on housing will crush both sides of the ownership ledger.
Harris’ plan for a 25% tax on UNREALIZED capital gains will cause housing prices to fall by 10%., ceteris paribus (all things equal). Lenders on housing (particularly those making zero down mortgages) will get clobbered.
Thanks to bank regulations, banks are buying some of the Fed’s balance sheet runoff.
Mortgage rates, like the US economy, are in retreat.
The good news? If Republicans retain the House majority, Harris’ tax plan will be defeated, If not, watch out!
Odd how President Biden (I almost wrote Obama) has vanished from The White House and can be found on the beach in Rehobeth Beach, Delaware.
Confounded Interest - Anthony B. Sanders 
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