More new highs for the major indexes are going into the Fed cut. This will be the 5th time in history that the Fed cuts rates when stocks are at all-time highs. In all prior instances, the S&P was higher a year later, with an average return of 20%, with the worst one-year return being 15% which occurred last year. If you think stocks are too high, think again.
At the same time, we’ve never seen such a concentration of performance, where the winners were so large, both in market weight and earnings contribution. Look at yesterday: We closed higher, the S&P broke 6,900 for the first time mid-day, while 398 companies closed lower. Big tech is everything right now. The poster child for this is NVIDIA, now up 57% YTD (+1,440% since YE ’22) and breaking through $5 trillion in market value, over 9% of total S&P 500 market value.
Going into the Fed cut today, we find the US 10-year holding on to 4%, the 2-year at 3.5%. Bets for a series of cuts continue to be optimistic but are not as firm as they were just a week ago. Another cut in December has faded from over 90% to under 80%, for a 3rd cut in January from 60% to 46%, a 4th cut in March from 32% to 19%. This could all change depending on what Powell says today. The lack of economic reports due to the government shutdown is part of the problem, and there’s no end in sight on that front. The US dollar index is flat near 89.5.
Today, gold has moved back up above $4K (+1%), and silver is up 2%, and copper has hit $5.25, up 6.8% in a month. Crude oil is up 1.2% to $60.90/bbl, and natural gas is flat at $3.84/mcf. Crypto has softened a bit, with Bitcoin down to $113.1K as that market waits for new regulations to be approved.
As the trading day moves on, we find stocks moving sideways, still firmly in the green despite a higher VIX, which jumped above 17 into the open, up from yesterday’s close of 16.4, and then pulled back to 16.8. Interestingly, both Microsoft and Meta are lower going into earnings, and Alphabet is higher. Amazon and Apple report tomorrow, AMZN is higher, AAPL is lower, both slightly. Short-term volatility is likely, but the longer-term trend is definitely positive.
