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Rate Hike Looming Large

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Today’s pre-market shows our major U.S. indexes slightly in the green this morning, ahead of a widely anticipated Fed policy decision on interest rates (hint: they’re going up another 1/4 point) this afternoon. This will be followed by a press conference featuring Fed Chair Jerome Powell today at 2:30pm ET.

These interest rate hikes — of which this will be the third so far in 2018, with a high likelihood of a fourth coming this December — do not historically have much sway on the market. Usually these announcements have been analyzed and parsed thoroughly, so that every aspect has the opportunity to be baked into market expectations. And we have seen no fear of the economy slowing down with another 25 basis-point hike today; the rate range will thus be brought up to 2.00-2.25 — the highest we’ve seen in more than a decade.

That said, when we have seen a near-term affect on index trading immediately following one of these rate hikes, it has been a tad on the sell-off side. Because these figures are always telegraphed so far in advance, the Fed in recent history has never shocked the economy to such an extent that it causes panic selling. If anything, it will be that forward projections are for a cooling off of economic metrics, whether next year, in 2020 or beyond.

This will also be the first time the Fed will have raised rates in the month of September, which has been an historically tumultuous month for the stock market going back to the crash of 1929. As of now, with the economic engine firing on all cylinders, a quarter-point hike won’t put a dent in forward projections. In fact, in creating a buffer in rates to 2%, the argument can be made that the Fed is acting responsibly in case of future economic contraction, whenever that may be. Also, sopping up some of this expansive growth in the U.S. currently will serve as a check on runaway inflation.

Speaking of expansive growth and inflation, we see this morning a new read from the Mortgage Bankers Association, which posted the highest mortgage levels in the past seven-and-a-half years. The 30-year mortgage rose 9 basis points, up nearly a full percentage point year over year. New applications for mortgage loans rose 2.9%. So as real estate is a major touchstone for inflation metrics, we see a furthering of our overall medium-term narrative: prices are going up, but manageably.

We expect New Home Sales results for August this afternoon, as well. A current estimate basically in-line with July’s tally of 627K appears likely. If we see softness in figures like these, they’re more likely to show up a month or two from now, when we start to see impacts in the Southeast from disasters like Hurricane Florence affecting things like new home construction and sales.

Keeping on the subject of new homes, KB Home (KBH - Free Report)  reported fiscal Q3 earnings yesterday after market close, beating on the bottom line but missing on the top. Earnings of 87 cents per share outpaced the 78 cents in the Zacks consensus — marking the 11th straight quarter of posting a positive earnings surprise. But revenues for the quarter came in 3.5% light at $1.23 billion. The Zacks Rank #4 (Sell) company has seen its stock sink 20% from the first of the year, though pre-market trading shows the stock up 4.75%. For more on KBH’s earnings, click here.

Ahead of this morning’s bell, CarMax (KMX - Free Report)  topped estimates on both sales and earnings for its fiscal Q2, with $1.24 per share beating estimates by 2 cents (and markedly up from 98 cents in the year-ago quarter) on revenues of $4.77 billion, which outperformed by roughly 1.2%. Shares of the new and used auto retailer are up 18% year to date, and are adding another 4% in today’s pre-market. For more on KMX’s earnings, click here.

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