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Why will the Fed cut interest rates 3 times in a row even as stocks near record highs? Investors may soon find out



Is Three Magic Numbers for Wall Street? We will soon find out Few think Jerome Powell & Co. will not cut interest rates next week for the third time in so many events of the Federal Open Market Committee setting interest rates.

Market probabilities suggest a 93.5% chance of reducing the quarter percentage rate to 1.50% -1.75% over the current 1.75% -2%, after the two-day October 29 -30 meeting, according to the CME Group, based on federal funds futures.

"For the market, it is important for the Fed to reduce interest rates next week, as it is so widely anticipated – e.g. the interest rate cut is more than 90% implied by Fed futures at the time, "Chris Zakarelli, chief investment officer of the Independent Advisor Alliance, told MarketWatch in an email comment Friday.

However, disappointment with Fed side is not out of scope, despite high expectations for Wednesday's third drop, especially as the S&P 500 index

SPX, + 0.41%

closed Friday about 0.1% of its July 26 record of 3,025.86, while the Dow Jones Industrial Average

DJIA, + 0.57%

and the Nasdaq Composite Index

COMP, + 0.70%

closed the session within 2% of their highest achievements.

In addition, the consensus to cut back-to-back rates seems far from certain of the Federal Reserve, which revealed its deepest divide since 2016, with Boston Federation President Eric Roungren and Federal President Kansas City Esther George prefers to leave rates unchanged, among three members who disagreed at last month's political meeting. And several members who chose to cut last month said they did not want another reduction.

This current round of monetary easing has been described as a mid-cycle adjustment by President Fed Powell earlier this year, a strategy that has been used in the past to prevent delays and this time is used to counteract the negative effects of nasty China-U. C. Commercial conflict.

Experts say third cuts fit the definition of mid-cycle change and may be justified as additional insurance as the recession that appears to be emerging in Europe is intensifying against the US

Keith Lerner, chief market strategist at SunTrust Advisory Services, cited a trio of rate cuts in 1995 and 1998 as a parallel to current monetary tactics.

"In fact, in 1995 (which Powell often talks about in a favorable light) and 1998, they both saw three cuts of 25 basis points, and then the Fed stopped; both are largely seen as mid-cycle adjustments or for insurance reasons, especially in 1995, "said a SunTrust strategist.

Lerner added: "As for the division within the FOMC, Powell probably won't want to put the Fed in the field."

"I suspect he will discuss that the Fed has cut tariffs to support the economy and now The Fed will monitor the data and it may focus on the concept of "data-dependent." Monetary policy is lagging behind, and some recent cuts are still making their way into the economy, "he explained.

However, the failure to achieve a reduction will not be kindly received by investors.

"If the Fed disappoints the markets by not cutting next week, I think we can see a decline of anywhere from 3-5%, but it all depends on how the Fed announces its decision," said Zakarelli of the IAA.

To be sure, the signs of softness (and outright weakness) are rotating in the US economy abound.

"The combination of increased trade insecurity and softer global growth continues to act as a powerful barrier to business spending with essential commodities for durable goods, their momentum decreases even more is in negative territory in September, "economists Lydia Busour and Gregory Draco of Oxford Economics wrote in a research report on Friday.

In fact, the decline in durable goods orders over the last 12 months has increased to 5.4%, which is the largest annual drop since mid-2016 and reflects the expanding decline in manufacturing activity.

With this in mind, Oxford economists believe the Fed will not resist the desire to cut rates, despite growing concerns about bubble formation in other parts of the financial markets.

"Despite some hints from Fed officials that it may be time to consider a pause to reduce the percentage, we believe that FOMC management retains its mitigating biases and remains at risk of unwanted tightening of financial conditions," [19659022] Jobs, jobs, jobs … and a flood of other data

It's not just about the Fed next week. An even more significant update is likely to be the Friday Jobs Report, which will be released on November 1st. Economists expect 93,000 jobs created in October against a disappointing increase of 136,000 in September, reflecting wage increases and the impact of strikes across Motors Co. as a whole.

GM, + 2.57% ,

according to Econoday's Consensus estimates, the unemployment rate is 3.6%, up from 3.5% last month.

Here's what the rest of the data front week looks like (bold for significance):

Monday:

  • International commodity trading at 8:30 AM Eastern Time as well as the National Activity Index in Chicago Fed and Retail Stocks
  • Dallas Manufacturing Survey

Tuesday

  • Case-Shiller House Price Index at 9am
  • Consumer Confidence at 10am, Along with Upcoming home sales concurrent

Wednesday

  • ADP private sector employment at 8:15 am
  • GDP report at 8:30 am [19659028] 2 p.m. Fed's Decision followed by 2:30 pm press conference

Thursday

  • Report on weekly jobless claims, reading of income and employment costs at 8:30 am
  • Chicago PMI at 9: 45 hrs

Friday

  • NFP at 8:30 hrs. (as mentioned above)
  • ISM production at 10 hrs., Coming after the IHS Markit report at 9:45 hrs. .
  • Construction Cost Report at 10 AM
Big Corporate Revenue [19659023] Monday

  • AT&T Inc.

    T, + 0.24%

  • Walgreens Boots Alliance Inc.

    WBA, + 1.78%

  • Beyond Meat Inc.

    BYND, -0.88%

  • Alphabet with Google parent

    GOOG, + 0.33%

    GOOGL, + 0.41%

  • T-Mobile US Inc.

    TMUS, + 0.17%

Tuesday

  • Pfizer

    PFE, + 1.04%

  • Merck

    MRK, -0.39%

  • Mastercard

    MA, + 0.54%

  • Citigroup

    AAPL, + 1.23%

Wednesday

  • Apple

    AAPL, + 1.23%

  • Genera Electric

    GE, + 0.56%

  • Facebook Inc.

    FB, + 0.81%

  • Starbucks

    SBUX, + 0.24%

Thursday

  • Bristol-Myers Squibb Co.

    BMY, + 1.12%

  • Kraft Heinz Co.

    KHC, -0.25%

  • Altria Group Inc.

    MO, -0.34%

Friday

  • Exxon Mobil

    XOM, + 0.23%

  • Chevron Corp.

    CVX, + 0.93%

  • Seagate Technology PLC

    STX, + 1.20%

  • Colgate-Palmolive Co.

    CL, + 0.10%

  • American International Group Inc.

    AIG, -0.19%

                                    
                

                    

            


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