December 18, 2024 | Bond Yields

MARKETS

S&P 500: Down -41 points to 6008, VIX: 15.45

Asia: Japan -0.72%, China +0.62%, Hong Kong +0.83%

Europe: Euro Stoxx 50 +0.32%, FTSE +0.01%, DAX +0.04%

FX: USD (DXY) up 0.17%, EUR down 0.14%, GBP down 0.13%, JPY down 0.37%, CNY down 0.03%

Energy: WTI Crude up 1.81% to $71.35, Brent up 1.33% to $74.15

Cross markets: Terminal rate down ~1bp at 4.36, Implied rate cuts 2-years from terminal down ~2bp at 77bp, 2/10 yield spread +17bp

Treasuries: 2-year yields down ~2bp at 4.222%, 10-year yields down ~1bp at 4.393%, 30-year yields unch at 4.591%

WHAT WE'RE THINKING

Snapshot: US equities are mostly higher into a highly anticipated Fed policy decision and updated forward guidance.  The Dow Jones Industrial Average is higher after posting its ninth consecutive decline yesterday with a helpful rebound in DIS and UNH.  Tech leads the S&P 500 (SPX) higher this morning with Health Care close behind on the rebound in managed care and PBMs.  Stocks that had been under pressure recently also recover with NVDA and UBER making the list of outperformers that’s topped by JBL after an impressive beat and raise quarter.  HII benefits from funding details in the stopgap budget agreement and BA extends gains after announcing its fully restored output.  AVGO sees a second day of profit taking with PANW, PAYC, TEAM and ZS as notable software laggards.  Defensive groups also lag with GIS leading Staples lower after the company cut guidance to reflect higher spending to boost volume/market share. Treasury yields are mixed into today’s Fed meeting, while the Dollar Index is a touch higher.  Gold is lower, copper is little changed and WTI crude is higher after EIA inventory data.  

• Bond yields and FX markets hold in a narrow range ahead of today’s policy decision, updated Summary of Economic Projections (SEP) and Powell press conference. Markets widely expect a 25bp rate cut, fewer implied rate cuts in ’25 and incrementally hawkish message from Powell. Markets are most interested in the updated SEP and dot plot with markets priced for ~50bp of cuts in ’25.  And Powell is expected to note the Fed can afford to be patient given a firmer economic backdrop.
• Today’s macro data is of little near-term consequence with November housing starts coming in lower than consensus, while building permits were above forecasts.  
• November core PCE inflation on Friday is the post-FOMC macro highlight.  
• The BOJ policy decision is due later this evening in the US with the central bank debating when to hike and the likely ceiling for the cycle.  
• Overseas data featured better Japan November exports, while imports fell short at -3.8% MoM vs. consensus for +0.8%. UK November CPI increased MoM to +3.5% from +3.3% in October but a little below consensus for +3.6%.  
• BIRK and WOR join JBL on the list of earnings-driven outperformers, while ABM, HEI and TTC trade lower after reporting.  MU is the earnings highlight this afternoon with EPAC, LEN, MLKN and WS also on the schedule. Earnings highlights for the rest of the week include ACN (tomorrow am), FDX/NKE (tomorrow pm) and CCL (Friday am).

SPX: The majority of SPX sectors have reached short-term oversold territory over the past two weeks. In our view, the widely followed negative breadth over the last 12 sessions was the result of 8 sectors burning off overbought conditions.  Of the sectors now in oversold territory, Financials and Industrials (both cyclical) are showing signs of decelerating downside momentum while maintaining bullish long-term pattern progress.  A near-term reversal in these sectors (hasn’t happened yet) would be an opportunity to add exposure.

FACT OF THE DAY

Joseph Stalin’s granddaughter, Chrese Evans lives in Portland, Oregon, where she sells antiques, vintage clothes and scented candles.

JSC IN THE MEDIA

Outlook for Mag 7: Andrew joins a Schwab Network panel to discuss the narrowing gap between the Magnificent 7 and the rest of the S&P 500. Watch Now

The Close on Bloomberg:  Andrew discusses AMDs downbeat earnings report and its challenges gaining meaningful market share in AI training. He also highlights a potential opportunity for AMD and others when the majority of AI workloads transition from the training to inferencing. Watch Now

Markets react as tensions rise in the Middle East: Andrew comments on recent events in the context of a market that is richly valued and therefore more sensitive to shocks of all kinds. Read on Reuters

 See more of JSC in the Media.

THIS DAY IN HISTORY

December 18, 1620: The English ship Mayflower anchors in Plymouth Harbor in present day Massachusetts. The Mayflower have arrived in Cape Cod a month earlier while small scouting groups were sent ashore to collect firewood and find a good place for settlement. Bad weather prevented the passengers from landing in their new home until this day.

CATALYST CALENDAR

Tomorrow: 1) US GDP revisions for Q3; 2) US weekly jobless claims; 3) US Philadelphia Fed index for December; 4) US Leading Index for November; 5) US existing home sales for November; 6) Eurozone auto registrations for November; 7) Putin’s annual press conference; 8) South Korea November PPI; 9) Japan national CPI for November; 10) China 1/5-year Loan Prime Rate and; 11) earnings before the open: ACN, CAG, CTAS, DRI, FDS, KMX, PAYX. After the close: FDX, NKE, SCHL.

Friday: 1) US personal income/spending for November; 2) US November PCE; 3) Final Michigan sentiment report for December; 4) Germany PPI for November and; 5) earnings before the open WGO.

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

Investment Advisory Services offered through Jackson Square Capital, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.