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Pre-Markets Down on Real & Projected Headwinds

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Pre-market futures have dipped back into negative territory at this hour, continuing their downward trajectory from mid-last week. The Federal Open Market Committee (FOMC) kept interest rates steady at 5.25-5.50%, but projected rates to come down a scant 25 basis points (bps) by the end of next year. This is not where the bullish sentiment in the market resided; it came as a slap in the face to those who were hoping we’d be at 4% or lower by the end of 2024.

Thus, over the past week of trading, indices have fallen between -2.16% on the Dow and -3.69% on the small-cap Russell 2000, with the Nasdaq and S&P 500 in the middle. All indices are up year to date, with the Russell and the Dow closest to dropping into the red — +1.32% and +2.62%, respectively. The tech-heavy Nasdaq, still enriched by the uber-positive A.I. story this past summer, is still up +35% from the start of the year, the S&P, also touched by the good news in tech, is +13% since the start of January.

Currently, the Dow is down -120 points, the S&P is -20 and the Nasdaq -70 points. These are low levels of the pre-market so far, less than half an hour before the first opening bell of the week. It’s also the last week of trading for the month of September, which has lived up to its reputation as the worst trading month historically of the year. That said, there does not seem to be a rush to crash valuations harshly; market activity seems to continue to roll off a portion of gains — hopefully with the idea that we can close the year with a rally that doesn’t inflate valuations too far beyond.

Not that we’ll be getting much help in the early part of this week in terms of economic data — nothing is scheduled for today. This changes, however, when we start getting Case-Shiller and other home pricing info, Durable Goods orders, and Friday’s Personal Consumption Expenditures (PCE) report, which is the Fed’s preferred metric for gauging economic health. Currently, core PCE year over year is expected to tick down 20 bps to +4.0%, a level we’ve not reached in roughly two years.

We also see some sabre-rattling about a federal government shutdown on Capitol Hill, which would put an end to government economic reports for the time being, as well as lie dormant important functions of the government in assisting people’s lives. And, while we’re seeing some good news in Hollywood over the writers’ and actors’ strike, the United Autoworkers (UAW) walkout is now in its second week, with a plethora of headwinds threatening economic progress until a deal is reached.

In short, the challenges are real, and the market is not ignoring them. While it doesn’t look so good on day-to-day stock market returns, we hold out some hope that what’s happening is investors acting responsibly in the face of an economy trying to figure out where it wants to go. Even the Fed’s “higher for longer” maxim speaks of responsible financial governance more than any real existential danger. If only other aspects of the federal government could act so responsibly.

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