Before the bell

Market Highlights

• Fed Rate Cut: The Federal Reserve made a significant move by cutting interest rates by 0.5%, launching a new easing cycle. Despite initial enthusiasm, some investors grew cautious as Chair Powell hinted at a slower pace for future cuts.

• Interest Rates and Bond Yields: Treasury yields saw little change for most of the week but closed slightly higher, with the 10-year Treasury yield hovering around 3.72%. The yield curve steepened as long-term rates outpaced short-term ones.

• Labor Market Resilience: Jobless claims dropped to 219,000, below expectations, suggesting the labor market remained strong, supporting the narrative of a "soft landing" for the economy.

• Retail Sales Beat Expectations: Retail sales rose by 0.1% in August, exceeding expectations of a decline. This reinforced consumer strength despite slowing gasoline purchases.

Notable Earnings

• AutoZone: AutoZone reported solid quarterly earnings last week, beating market expectations with stronger-than-expected revenue growth. The company's performance was driven by robust demand in its commercial business segment and a focus on expanding its inventory. Despite inflationary pressures, AutoZone maintained healthy margins, and management expressed confidence in the continued strength of the auto parts market.

• FedEx: FedEx posted earnings that surpassed estimates, thanks to cost-cutting initiatives and operational improvements. However, the company signaled concerns over slowing global demand, which tempered its outlook for the next quarter. While shipping volumes were lower, FedEx's focus on improving efficiencies helped boost profitability.

• General Mills: General Mills reported mixed results for the quarter, with revenue falling slightly short of expectations. The food giant faced challenges from rising input costs, but managed to offset some of the impact through price increases. Despite these hurdles, the company's strong brand portfolio and focus on innovation helped support its long-term growth strategy.

S&P 500 Returns 18 months following first Fed rate cut

The chart illustrates the S&P 500's performance in the 18 months following the first Federal Reserve rate cut, segmented into three distinct categories: insurance cuts, recession cuts, and the overall average. The insurance cuts (1984, 1989, 1995, 1998) show the strongest recovery, with the S&P 500 gaining approximately 30% over the period, reflecting the market's positive reaction when the rate cuts were made proactively to safeguard against potential economic downturns. The average of all cuts marks a more moderate increase of 8.5%, indicating that while rate cuts generally buoy the market, the results are more varied across different periods. On the other hand, recession cuts (1980, 1981, 2001, 2007), where the Fed responded to existing economic weakness, resulted in a significant decline of 14%, highlighting the challenges in stimulating the market during recessionary periods. This graph underscores the contrasting market trajectories depending on the economic context in which rate cuts occur.

Outlook Snapshot: The Week Ahead

Looking into the next week, the markets prepared for more economic data releases, including updates on manufacturing and services activity, housing market health, and the latest consumer confidence figures. Investors were keenly watching for any signs that could influence the ongoing debate over whether the economy is truly heading toward a soft landing. With the Federal Reserve’s rate cut now behind us, attention shifted to inflation data and whether it would continue to moderate as expected. The job market was also under scrutiny, with many expecting further signs of gradual cooling but no dramatic collapse in employment. Small-cap stocks, alongside cyclical sectors, were poised to potentially extend their gains, given the renewed focus on economic growth. Lastly, the performance of consumer discretionary and technology stocks would be closely watched, particularly as holiday season sales came into view, signaling what could be a defining moment for retailers as they head into the year-end.