The Federal Reserve wrapped up its latest Open Market Committee meeting yesterday and, as expected, lowered the current federal funds rate for the first time since 2020. But the central bank surprised some by taking the rather extraordinary step of reducing the rate by 50 basis points (bps), as opposed to the normal 25-basis-point move. Why the big cut? In our opinion, the Federal Reserve is clearly shifting its focus from fighting inflation to protecting the employment environment. Since the Fed started raising rates in 2021, CPI inflation has fallen from readings above 9.0% to readings below 3.0% -- and continues to edge toward the central bank's goal of 2.0%. Meanwhile, the unemployment rate has increased from 3.4% to 4.1% and monthly payrolls gains have slowed from 300k to 100k. Indeed, the Fed has lifted its year-end target for the unemployment rate to 4.4% from 4.0% last June. Based on the Fed's decision, its commentary, and the forecasts of its governors, we are making adjustments to our interest-rate outlook. We are maintaining our forecast for two more rate cuts in 2024 -- both of which we think will be 25 basis points. We are adding a forecast for an additional rate cut in 2025, bringing our estimate to three cuts for the year. Those cuts will bring the fed funds rate down toward 3.5%, which, assuming inflation continues to drop toward 2.0%, will return real, inflation-adjusted rates back toward historical averages.

Mastercard is the second-largest payment processor in the world, having processed close to over $9 trillion in volume during 2023. Mastercard operates in over 200 countries and processes transactions in over 150 currencies.

Mastercard is the second-largest payment processor in the world, having processed close to over $9 trillion in volume during 2023. Mastercard operates in over 200 countries and processes transactions in over 150 currencies.

Stocks could be in another holding period after eight straight days of gains for the major indices. In addition, the FOMC minutes from the July 30/31 meeting drop today at 2:00 pm, Jackson Hole and Chairman Powell take center stage on Friday, and a critical EPS report from NVDA comes next Wednesday. The major indices saw modest losses on Tuesday (between 0.2% and 0.3%). Once again, the small-caps took the brunt of the selling, with the Russell 2000 and S&P 600 both falling slightly more than 1%, and the S&P MidCap 400 dropping 0.9%. It was the weakest NYSE breadth day since the panic on August 5. Sector leadership (if you can call it that) was provided by defensive Staples (+0.5%) and Healthcare (+0.4%). Seven sectors saw losses of less than 0.4%. Energy was the big loser, giving up 2.6% as WTI fell back to the $73 region and close to the lows seen in early August. The Nasdaq 100 (QQQ) McClellan Oscillator (market breadth indicator) has traced out a breadth thrust as the oscillator jumped to +90 from -76 in 10 trading days. The indicator also went from below its lower Bollinger Band to above its upper band. We saw a similar combination of moves back in October/November 2023, just when the QQQ started a big move higher. We also have seen similar moves by the oscillator for the S&P 500, with a nice rebound from the S&P 100 as the oscillator rose to +86 from -69. Seasonality is tricky this time of year due to low liquidity. However, there is a weak period just ahead, namely the second half of September. And that is true whether we look at the past 30 years or the past 50 years. (Mark Arbeter, CMT)