U.S. equity indexes experienced a downturn on Tuesday, although they remained close to their all-time highs as anticipation built for the second day of the Federal Open Market Committee (FOMC) meeting. Fresh data highlighted that the American consumer is still resilient, despite emerging signs of weakness within the labor market.
While the direction of the federal funds rate appears assured, with predictions of a decline from the current target range of 4.25% to 4.50%, market analysts suggest that the meeting could become “one of the strangest in years,” according to Nick Timiraos from The Wall Street Journal. Decisions are set to be revealed at 2 p.m. Eastern Time, followed by a press conference featuring Fed Chair Jerome Powell at 2:30 p.m. on Wednesday.
The FOMC meeting is taking place amidst a politically charged atmosphere, influenced by ongoing criticism regarding interest rates from former President Trump and legal uncertainties surrounding the meeting’s participants. Notably, the U.S. Senate confirmed Stephen Miran, who will replace former Fed Governor Adriana Kugler on the central bank’s board and is present to vote at the FOMC meeting. Meanwhile, Fed Governor Lisa Cook’s position remains intact due to a court ruling preventing her dismissal by Trump; she is also attending the meeting. The White House has indicated plans to appeal this ruling.
According to the CME FedWatch tool, the likelihood of a rate cut sits at 100%, although the chances of a more significant, 50-basis-point reduction have decreased from 5.0% to 3.9% since Monday’s session.
In the markets, the tech-heavy Nasdaq Composite dipped by 0.1%, settling at 22,334. Similarly, the S&P 500 fell by 0.1%, ending the day at 6,066, while the Dow Jones Industrial Average reported a 0.3% drop, closing at 45,757.
Interestingly, GE Aerospace stock surged to an all-time high, with shares climbing 2.2%. This marks a significant milestone for one of America’s most storied industrial companies, which achieved a stock price of $294.74, surpassing its previous intraday high of $289.94 reached in August 2000. Following the completion of a major separation into GE Aerospace, GE Vernova, and GE HealthCare Technologies earlier this year, analysts remain optimistic. Morgan Stanley’s David Arcaro reiterated an Overweight rating and a 12-month price target of $675, citing promising growth prospects and robust demand within the gas turbine market.
On the consumer front, retail sales data released by the Census Bureau showed a surprising increase of 0.6% month-over-month for August, far exceeding the anticipated 0.2% growth. Year-over-year sales growth also stood at 5.0%. Comerica Bank’s Chief Economist Bill Adams noted that back-to-school shopping significantly contributed to these results, particularly for clothing and online retailers. However, he observed weaker grocery sales, suggesting that lower and middle-income consumers might be pulling back, whereas affluent consumers could be supporting overall retail growth.
Conversely, the housing market remains under pressure, as indicated by the NAHB Housing Market Index holding steady at 32 in September, below the expected increase. The data suggests that nearly 39% of builders lowered prices, reflecting ongoing softness in the housing sector. Raymond James Chief Economist Eugenio J. Alemán highlighted that conditions vary regionally, with challenges particularly evident in the South, the largest housing market in the U.S. This trend indicates sustained difficulties for residential investment as the market heads into the third quarter.
