With the Federal Reserve moving away from its prior efforts to tighten money supply, the measure theoretically provides relief for many economic entities. Under basic economic principles, reduced costs of borrowing encourage capital expenditures, investments and other growth-centered activities. However, one of the more obvious beneficiaries is the housing market.Earlier this year, the U.S. housing market inked the slowest month of May for existing-home sales since 2009, underscoring the harsh reality behin ...

Group 1: Equity Market Performance - Equities rallied in Q3, with broadening market participation driven by improving trade policy, rate cut optimism, and better-than-expected corporate earnings [1] - The Nasdaq Composite Index and S&P 500 Index achieved their best Q3 since 2020 and their best September in 15 years, despite poor seasonal trends [1] - US growth was up 9.8%, emerging markets increased by 9.5%, and US small-caps rose by 9.2% during the quarter [1] Group 2: Federal Reserve Actions - The Federal Reserve cut the fed funds rate by 25 basis points in September, lowering the target range to 4.00–4.25%, marking the resumption of an easing cycle [2] - Chair Powell noted that the labor market is showing signs of weakness, with low hiring becoming a growing concern [2] - The updated Summary of Economic Projections indicated inflation is expected to remain above target at 3.1% for 2025, while GDP growth for the year was revised up to 1.6% [2] Group 3: Historical Performance Insights - Historical data shows that the S&P 500 tends to rally significantly in the 12 months following a pause in Fed rate cuts [3] - The S&P 500 Equal Weight index has historically outperformed its market-cap weighted counterpart when market leadership broadens [3] - The current market-cap weighted index is on its best streak since the late 1990s, but a shift may occur due to recent dovish monetary policy [3] Group 4: Economic Outlook - The economy exhibits signs of a late-cycle environment, yet early-cycle signals are emerging alongside a dovish monetary policy outlook [4] - Fundamentals appear constructive in sectors like banks and small to mid-cap equities, with expectations of narrowing earnings growth gaps between large tech firms and the broader market [4] - Despite challenges such as a softening labor market and sticky inflation risks, corporate results have exceeded expectations, and PMIs remain near or above expansionary thresholds [5]

Investment Rating - The report indicates a base case median expectation of two 25 basis point rate cuts this year, with a possibility of one rate cut being signaled [7]. Core Insights - The report outlines three primary reasons for a dovish stance from Chair Powell: three months of softer core inflation, rising continuing jobless claims, and softer housing data [6][9]. Summary by Relevant Sections Inflation Data - Core PCE inflation is projected to register an annualized rate of 1.6% over March, April, and May, indicating a slowdown from stronger readings earlier in the year [9]. - The decline in shelter inflation is expected to continue due to weak housing activity and a decrease in Case-Shiller house prices [9]. Labor Market - Continuing jobless claims have risen to 1,956,000, the highest level since 2021, while initial jobless claims remain lower, suggesting weak hiring conditions [9]. - The labor market is perceived as "resilient" with 139,000 new jobs added and an unemployment rate of 4.2% in May, but recent data adds caution to Powell's outlook [9]. Housing Market - The housing sector is contracting, with prices, permits, and starts for single-family homes all declining. The NAHB index fell to 32, the lowest since 2022, particularly weak in the South [9]. - Current mortgage rates are contributing to the contraction in the housing market, indicating that interest rates remain restrictive and may need to be reduced [9].