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At the close of the final trading day before the Fed’s long-awaited interest rate cut, market indexes finished flat for the day. While the Dow slipped incrementally, -0.04%, the S&P 500 wound up on the other side of that ledger, +0.03%, for its seventh-straight higher closing day. The Nasdaq and the small-cap Russell 2000 ended the session upwards, +0.20% and +0.74%, respectively.

With so much forward speculation whether we’ll see a 25 basis-point (bps) rate cut or a 50 bps cut, there’s bound to be some sort of market reaction tomorrow afternoon, regardless which way the worm turns. Should we see a 25 bps cut, some will worry the Fed hasn’t been forceful enough; if it moves 50, others will fret there may be more weakness the Fed sees that the rest of us don’t.
 

Tuesday Economic Results: Retail Sales, Production/Utilization, Inventories and More

With this in mind, we’ll let the data light our way. After Retail Sales came in stronger than expected on headline and under the hood — core breakdowns and previous month revisions — we also saw econ reports across a wider spectrum reported both directly before and slightly after the opening bell this morning.

Industrial Production for August posted a major swing to the positive: +0.8% from expectations of +0.2%. This followed a downwardly revised -0.9% in July, which was struck by Hurricane Beryl slamming into the bottom tip of Texas and carving a swath all the way up to Toronto. Last month’s +0.8% is the highest Industrial Production level in the past eight months.

Capacity Utilization for August — the sister report to Industrial Production — also notched slightly higher than expected, 78.0 versus 77.9, and 20 bps greater than the previous month’s downwardly revised 77.4. It’s still off the 78.2 reported in May and June, but back in a strengthening direction.

Business Inventories for July, at +0.4%, split the difference from the previous two months — an unrevised +0.3% in June and +0.5% in May. Although inventories are seen as the least impressive type of economic growth (which must be moved off the shelves if the goods aren’t sold), it’s still the fifth up-month in seven for 2024.

The latest Homebuilder Confidence Survey for September — a more current economic print — rose to 41 from a consensus estimate of 40, and following an unrevised 39 for August. With interest rates about to embark on a downward cycle, however gentle it may be, this will be good news for mortgage rates, which can also be expected to come down over time.
 

Housing Starts and Building Permits Wednesday Morning

Ahead of the big Fed decision and press conference with Fed Chair Jerome Powell tomorrow afternoon, we’ll get the final economic report ahead of the first downward move on interest rates for four-and-a-half years. It will be another duo: Housing Starts and Building Permits. Both are expected to come in incrementally higher month over month but still at scant levels. This can also be seen as an expectation that mortgage rates will begin to ease in the coming months.

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