Wall Street Breakfast: Sit Tight

Sit tight

Markets are still digesting the latest messaging from the Federal Reserve, which wrapped up a two-day policy meeting on Wednesday afternoon. "The fact that we've come this far lets us really proceed carefully," said Chair Jerome Powell, emphasizing some recent battles won on the inflation front, but citing risks related to an overly resilient economy and labor market. On that note, the central bank kept rates unchanged for the second time this year, though investors were watching what might come next in the FOMC's economic projections.

The dots: The median projection for the federal funds rate at the end of the year was 5.6%, implying one more hike - the same seen in the June projection. Policymakers also increased their forecasts for the fed funds rate at the end of 2024 to 5.1%, compared with the previous 4.6%, while the median projection for the end of 2025 rose to 3.9% from 3.4%. Fewer rate cuts were seen in 2024, leading benchmark indices to close the session lower, with the Nasdaq (COMP.IND) sliding 1.5%. The yield on the 2-year Treasury note (US2Y), which reflects interest rate expectations, also hit 5.118%, marking the highest level since 2006.

"Forecasts are highly uncertain. Forecasting is very difficult. Forecasters are a humble lot with much to be humble about," Powell noted during his press conference. "In terms of inflation, you are seeing - the last three readings are very good readings. It's only three readings. You know, we were well aware that we needed to see more than three readings. The only concern - and it just means this. If the economy comes in stronger than expected, that just means we’ll have to do more in terms of monetary policy to get back to 2%, because we will get back to 2%."

What to watch: So far the Fed has seemed to add enough pressure on financial conditions with less fallout for growth and employment compared to previous U.S. inflation battles. That has led the market to price in an economic "soft landing," which has helped prop up stocks for much of the year, contrary to many of the initial forecasts on Wall Street. The key question is whether that can keep on going. Have the 525 basis points in interest rate hikes delivered since March 2022 already filtered through the economy? Will things hold up if those levels are held through 2024? What about other curveballs like higher energy costs, student loan repayments, damaging labor strikes or a government shutdown?

Hollywood talks

The Hollywood strike could soon end as writers and major studios met face to face on Wednesday, and will meet again today with an aim to finalize a deal. If an agreement is not reached, the strike could extend through the end of the year. Writers have been on strike since May, with actors joining the picket lines in July in a historic double strike, halting production of several TV shows and films. "While Netflix may run out of new content later compared to its competitors, the threat is real," said SA analyst Luca Socci. Investing Group Leader Stone Fox Capital also warned investors that Warner Bros. Discovery (WBD) may “face a major hit next year without new original content.” (5 comments)

Latest earnings

Shares of FedEx (FDX) rose 5.8% after the close on Wednesday after the company's sales outlook beat estimates. The package shipping firm posted earnings that easily topped expectations, as it continued to cut costs and poached customers from rivals UPS (UPS) and Yellow (OTC:YELLQ). However, revenue of $21.7B came in just under estimates amid ongoing demand weakness. "Labor negotiations at our primary competitor and the bankruptcy of Yellow disrupted the market," said CEO Raj Subramaniam, adding that FedEx aims to maintain the majority of the business won. FedEx Express continued to weaken, although cost cuts helped push operating profit higher. (13 comments)

Free tests

The Biden administration is resuming a program to deliver free COVID-19 tests through the mail, according to Secretary of Health and Human Services Xavier Becerra. The federal program had restarted last December in partnership with the U.S. Postal Service, allowing households to order a total of four at-home COVID tests for free. However, plans to preserve the remaining test kits and a decline in hospitalizations prompted officials to pause the program in June. The latest decision to resume the program comes amid a slight uptick in COVID-related hospitalizations in the U.S. Rapid COVID-19 test makers include Abbott (ABT) and Becton, Dickinson (BDX), QuidelOrtho (QDEL) and QIAGEN (QGEN). (38 comments)

Today's Markets

In Asia, Japan -1.4%. Hong Kong -1.3%. China -0.8%. India -0.9%.
In Europe, at midday, London -0.6%. Paris -1.5%. Frankfurt -1.1%.
Futures at 7:00, Dow -0.5%. S&P -0.7%. Nasdaq -0.9%. Crude -0.9% to $88.85. Gold -1.1% at $1,944.80. Bitcoin -1.6% to $26,653.
Ten-year Treasury Yield +8 bps to 4.43%.

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Current Account
10:00 Existing Home Sales
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

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