Macrosynthesis
TLDR
- Fed cuts rate .5% - some still worried they will get it wrong
- Mortgage rates plunge, home sales fall
- Americans are running out of money but not equity, yet
- Trump and Harris fight over the Fed
- Energy stocks make a comeback
- Qualcomm rumored to be looking to acquire Intel
- Microsoft joins Oracle, goes nuclear powered
Fed Cuts Rates .5% As Many Have All Been Waiting For
Following a 3.5% rally in the S&P 500 since September 11th, Jerome Powell fueled the momentum by announcing a 50-basis-point rate cut - the first in over four years. Major indices whipsawed, with the S&P 500 swinging between gains and losses. Treasuries fell, equities adjusted, and gold surged. Investors are split on whether the cut will prevent a recession or because it's already starting. Market uncertainty persists due to differing Fed and market rate projections.
In most cases historically, rate cutting cycles mark the beginning of recessions. 1995 was an exception and one we're following closely in case we do end up in that sweet soft landing scenario. While the economy is doing well, low-income consumers are being crushed by the 21% cumulative inflation inflicted over the last 4 years. Credit card delinquency rates are now above pre-covid levels and rising quickly, though still below historical levels. Anchoring the economy seems to be low mortgage delinquency rates, high home equity levels, and high employment rates. Should one of these three stool legs fall, we'll have a problem.
Mortgage Rates Plunge and Home Sales Fall
Mortgage rates dropped to 6.09%, the lowest since early February 2023, following the Federal Reserve's jumbo rate cut. Despite this, sales of existing homes fell 2.5% in August, marking the lowest level since 2010. However, with declining mortgage rates and increased inventory, experts expect demand for housing to rise in the coming months, potentially easing affordability pressures for prospective buyers. The median price of existing homes rose 3.1% year-over-year to $416,700, marking the highest August price on record. Investors took notice, pouring into real estate stocks like Zillow and Redfin, which are up 25% and 43% respectively this past month, despite neither company being profitable last quarter.
Net Savings Plummets: Americans Are Out of Savings
Americans have experienced six consecutive quarters of negative net savings as a percentage of GDP across households, businesses, and government, signaling they are consuming more than they produce. Excess savings, once at $2.1 trillion just over two years ago, have been declining by $100 billion per month since 2022. The personal savings rate dropped to 2.9%, the lowest since 2008.
Credit Card Delinquencies Rising
Americans now hold a record $1.14 trillion in credit card debt, with the average balance per consumer reaching $6,329, an increase of 4.8% year over year. Rising delinquencies - shown in the graph above - show financial strain, with credit card delinquencies over 90 days at a significant high, particularly among large banks.
'Don't Fight the Fed, Donald'
Vice President Kamala Harris' campaign criticized Donald Trump for labeling the Federal Reserve's 50-basis-point rate cut a "political move." Trump argued that a smaller 25-point cut was more appropriate and suggested political motives behind the decision. Harris' team called his response reckless, highlighting Trump's previous calls for executive control over the Fed. This exchange occurred ahead of Trump’s scheduled speech in North Carolina, where he is expected to discuss economic issues. Although Trump holds an advantage over Harris on handling the economy, Harris leads by more than 2.5% with less than two months remaining until Election Day.
Energy Stocks Outperformed Other Sectors Last Week
In the latest weekly performance of the S&P 500 sectors, we observed a mixed outcome. Energy stocks led the pack with a gain of +3.8%, following rising oil prices. A close second was Communications stock at +3.7% and Financials at +2.4%. Other strong performers included Consumer Discretionary stocks with a +2.3% increase, Utilities and Industrials stocks both rising by +2%.On the downside, Consumer Staples stocks declined by -1.2%, while Real Estate fell by -1.4%. Healthcare also saw a slight drop of -0.6%. Gold continued its strong run with no signs of stopping, while Uranium miners (URNM) also rose on news big tech is going nuclear.
The Week Ahead
In the U.S., attention will be on PCE prices, personal income, and spending data, alongside speeches from key Federal Reserve officials, including Chair Jerome Powell. Investors will also track the final Q2 GDP growth reading, S&P Global PMI data, consumer confidence from the Conference Board, durable goods orders, and new and pending home sales reports.
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Natural Gas
+5.6% (1W Chg)
+11.81% (1M Chg)
Sugar
+19.4% (1W Chg)
+27.65% (1M Chg)
Eggs
-27.9% (1W Chg)
+137.5% (YoY Chg)
Gold
+1.67% (1W Chg)
+4.33% (1M Chg)
Company News
LevelFields AI Alert Highlights This Week
Last week, LevelField alerts delivered significant gains: LUNR surged 38% following a $4.82B NASA contract, LSCC rose 18% on the announcement of a new CEO, AGX gained 7.5% after a 25% dividend increase, Nike climbed over 6.5% following the appointment of a new CEO, and ADMA jumped 10% after being added to the S&P 600 Small Cap Index.
Intel: An Underdog Story?
Intel recently announced a partnership with Amazon Web Services to co-invest in custom chip design, providing a much-needed boost to its struggling chip-making business. This deal, coupled with a $3 billion government grant for military chip production, is part of Intel's effort to regain its footing in the chip market. Meanwhile, Qualcomm has allegedly approached Intel about a potential takeover, as it continues to challenge Intel’s dominance, particularly with Intel lagging behind competitors like Nvidia and Texas Instruments in the AI space. Intel reported a $1.6 billion loss last quarter and faces mounting debt. Could this be the start of Intel's comeback?
Under CEO Pat Gelsinger, Intel’s turnaround plan is at a critical juncture. While the company has made strides in chip manufacturing technology, it struggles to attract foundry customers and produce competitive products. Once a strength, Intel's integration of chip design and manufacturing now complicates its recovery. To regain investor confidence, Intel must successfully deliver its upcoming server and PC chips, which are pivotal to its resurgence.
Small Caps Stock Rise on Rate Cuts
Small-cap stocks experienced their longest winning streak since March 2021, driven by the Federal Reserve's significant interest rate cut. The Russell 2000 index, focused on small-cap stocks, recorded seven consecutive days of gains, marking a notable rally. However, by Friday, small-cap stocks retreated, with the Russell 2000 down 0.6%. Small caps do well in an environment where interest rates are falling as it brings borrowing and expansion costs down. The lower costs are more significant for smaller companies with lower cash reserves.
U.S Steel Debate Rises
U.S. Steel shares rose 7% this week after reports that Nippon Steel received approval to refile its $14.1 billion acquisition plan. The extension from a U.S. security panel is likely to delay the politically sensitive decision until after the November presidential election. President Biden has voiced opposition, emphasizing that U.S. Steel should remain domestically owned, while the United Steelworkers union is also pushing for stronger job guarantees as the deal continues to spark debate.
Constellation Energy Shares Jump on MSFT Deal
Shares of Constellation Energy surged after the company signed a deal with Microsoft to supply clean energy for Microsoft's cloud computing and AI data centers. The partnership, which may lead to the reopening of the Three Mile Island nuclear plant, is projected to contribute $16 billion to Pennsylvania's economy.
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The Quick Sprints Scenario Led to a 30% Gain in 2 Days
Our Quick Sprints scenario monitors a combination of technical signals and fundamental metrics to pick up on stocks breaking out of their recent trading patterns. On the 19th of September, it flagged Constellation Energy breaking out. A day later, Microsoft announced a 20-year plan to buy energy from one of CEG's dormant nuclear facilities and the CEG stock price shot up.
Coincidence of Insider Buying?
The movement of CEG shares a day before the Microsoft announcement seems like there was some insider knowledge of the pending deal, and insiders scooped up the shares. After all, it would be very tough to keep a deal this big with so many stakeholders quiet.
How To Use AI to Trade Stocks in the Quick Sprints Scenario?
The Quick Sprints scenario is a bullish scenario that identifies strength in the share price movement based on 11 different indicators. Sometimes the movement lasts a few days, other times the movement is the beginning of a long-term run in the stock price. The scenario predated a 60% run in the share prices of Netflix and Dick's stocks, and recently flagged a number of S&P 500 stocks breaking out of their trading patterns.
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Upcoming Earnings:
Tuesday: AutoZone (AZO), KB Home (KBH)
Wednesday: Micron Technology (MU)
Thursday: Accenture (ACN), TD Synnex (SNX), Costco (COST), Vail Resorts (MTN)