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The equity futures market is angling to show some rebound intentions, which is understandable given that the Dow Jones Industrial Average is on a nine-session losing streak and NVIDIA (NVDA) has dropped nearly 15% from its November 21 high. For the record, the Dow's losing streak is the longest since 1978.
Currently, the S&P 500 futures are up five points and are trading 0.1% above fair value, the Nasdaq 100 futures are down 15 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are up 109 points and are trading 0.5% above fair value.
These indications, though, are also somewhat meaningless in front of the FOMC decision at 2:00 p.m. ET, which will also include the release of the Summary of Economic Projections (SEP), and Fed Chair Powell's press conference at 2:30 p.m. ET.
Granted it might be a stretch to say the indications are "meaningless." The point is that the FOMC decision and all that comes with it is the key driver today.
Market participants will have a better sense of the Fed's expectations for the policy path (embedded in the Summary of Economic Projections) and its tolerance for change (embedded in Fed Chair Powell's words and tone).
What the market is readying itself to hear is that there was agreement on a 25-basis points rate cut today to 4.25-4.50%. The big question is, will that decision be unanimous? It is a fair question given the resilience of the economy, the sticky inflation, and the easy financial conditions that feature tight credit spreads and record-high (or near record high) stock prices.
The market is also bracing to hear Fed Chair Powell convey a sense that the Fed is apt to refrain from another rate cut in January. The questions are, just how long might any pause last and how might that translate in terms of total rate cuts in 2025. The last SEP suggested there might be 100 basis points worth of easing in 2025.
These are all relevant questions the capital markets are anxious to have answered. Accordingly, today's open matters a lot less than today's finish insomuch as it gauges if the market's rebound intentions are for real.
The Treasury market is expected to have a good bit of say in that. Yields have been sneaking higher this month. Leading the uptick have been longer-dated securities, which are more sensitive to inflation trends.
The 2-yr note yield, which is more sensitive to changes in the fed funds rate, is unchanged at 4.24% but up nine basis points for the month. The 10-yr note yield is up four basis points to 4.42% and up 24 basis points for the month. A 4.50% yield on the 10-yr note seems to be the line in the sand for the stock market as a potential disruptor to its willingness to look past stretched valuations.
The Treasury market didn't look past this morning's economic data, which featured a widening in the current account deficit to $310.9 billion in the third quarter (Briefing.com consensus -$283.0 billion) from a downwardly revised $275.0 billion (from -$266.8 billion) in the second quarter, and a mixed Housing Starts and Building Permits Report.
Total housing starts declined 1.8% month-over-month to a seasonally adjusted annual rate of 1.289 million units (Briefing.com consensus 1.347 million) while building permits increased 6.1% month-over-month to a seasonally adjusted annual rate of 1.505 million (Briefing.com consensus 1.430 million).
The key takeaway from the report is that single-unit starts were up 6.4%, led by a bounce back in the South (+18.3%) following the hurricanes; however, single-unit permits, a leading indicator, were up just 0.1%.
The 2-yr note yield dipped after the report while the 10-yr note saw little change. The relatively steady demeanor will certainly be subject to change when the FOMC news is out.
