Daily Brief - Fed's One-and-Done

TLDR: The Fed is standing firm on interest rates, aiming to curb inflation by keeping borrowing costs high and officials penciling in just one rate cut for 2024.

Currently, the benchmark federal funds rate remains in the 5.25% to 5.5% range, the highest it's been in two decades. However, policymakers foresee four rate cuts in 2025, an increase from the previous projection of three. This decision underscores the Fed's cautious approach, despite some encouraging inflation data.

Fed Chair Jerome Powell highlighted that recent inflation readings are more favorable, indicating modest progress toward the 2% inflation goal. However, he stressed the need for more positive data to confirm this trend. "We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%," Powell noted.

The Fed’s "dot plot" revealed varying opinions among officials about the path forward. Four officials saw no rate cuts this year, seven anticipated one cut, and eight expected two cuts. The Federal Open Market Committee also revised its post-meeting statement to reflect "modest further progress" towards the 2% inflation target, a shift from earlier statements citing a "lack" of progress.

Despite the Fed’s stance, market traders are betting on two rate cuts by the end of the year, with a significant chance of the first cut happening as early as September.

Market Movers: Top 10 performing S&P stocks

Here are the historically best performing stocks on a 1-month horizon, post previous rate cuts:

1. Moderna Inc: 10.22%
2. Qorvo: 7.93%
3. Cognizant Technology Solutions: 7.11%
4. Enphase Energy: 7.04%
5. Transdigm: 6.65%
6. Incyte: 6.48%
7. Generac Holdings: 5.93%
8. Centene: 5.83%
9. Penn National Gaming: 5.48%
10. Illumina: 5.47%

Market Movers: Bottom 10 performing S&P stocks

1. Etsy: -17.39%
2. Ulta Beauty: -12.88%
3. Marathon Petroleum: -12.49%
4. Under Armour 'C': -12.47%
5. Diamondback Energy: -11.01%
6. Arista Networks: -10.84%
7. American Airlines: -10.70%
8. Las Vegas Sands: -9.83%
9. Ingersoll-Rand: -9.64%
10. DuPont: -9.35%

Earnings Spotlight: What happens to the 10Y?

Historical data indicates that the yield on the US 10-year Treasury could fluctuate in either direction during the month following past rate cuts, though median movements tend to lean upwards.