Interest Rates Continue Falling And The Passing Of Charlie Munger

Key Takeaways

• Stocks Keep On Keeping On
• Goldman Sachs And Apple Parting Ways
• Charlie Munger Passes Away At 99

It may have been meager, but both the S&P 500 and Nasdaq Composite closed higher Tuesday. The S&P gained 0.1% while the Nasdaq was up 0.3%. Year-to-date, both indices have notched significant gains with the S&P up 19% and Nasdaq higher by 50%. Most of the more recent gains have come as fears over further interest rate hikes have lessened along with signs the economy is slowing, but not stagnating.

According to the CME, there is nearly 100% certainty that the Federal Reserve Open Market Committee (FOMC) will leave rates alone when they meet two weeks from today. At the same time, we’re seeing probabilities of rate cuts in 2024 not only increasing but coming sooner than most expected. Already, there is a 40% chance of a quarter-point rate cut as soon as March, which is up significantly in just the past couple of weeks. Looking out to the end of 2024, markets are assigning a 95% chance rates will be somewhere between 3.75% – 5%.

The bond market is also supporting the idea that the Fed is done raising interest rates. On Tuesday, the yield on the 10-year note closed at 4.33% while rates on the 2-year closed at 4.60%. Then there is the Fed itself. Yesterday, Fed Reserve Governor Christopher Wallace, who has been hawkish on interest rates, struck a much more dovish tone about the need for future rate hikes. Those comments precipitated the drop in rates, sent the U.S. dollar to its lowest level since August and pushed gold prices to a seven-month peak.

Taking a look at the economic data that’s driving the market and interest rate decisions, yesterday’s latest reading on Consumer Confidence showed an uptick for the first time in four months. According to the Case-Shiller National Home Price Index, housing prices increased 3.9% in September on a year-over-year basis. That’s up from the prior release which showed prices moved higher by 2.5%. Month-over-month, housing prices increased 0.7%. One caveat to the housing prices is the lack of supply. Higher mortgage rates have really limited the housing supply, which in turn has helped push prices for existing homes higher.

I mentioned gold prices have hit a seven-year peak, at the same time, crude oil prices have picked up a bit. Just since last week, oil prices are higher by nearly 5.5% in advance of this week’s OPEC meeting. Despite the recent run, prices are still well off from their September high of over $90 per barrel.

Some individual stocks in the headlines this morning include Apple
AAPL
and Goldman Sachs. Goldman is looking to exit the consumer credit card business and as the company behind Apple’s credit card offer, that leaves Apple searching for a new bank. American Express
AXP
and Synchrony Financial are both rumored to be in the mix, but what I find most interesting about this are the remaining questions around what Goldman’s retail strategy becomes. Known for their institutional offerings and high net worth individual services, the company has really struggled to break into the retail market and it remains to be seen if this will signal the end of those efforts or a change in tactics.

Also making news this morning is General Motors
GM
. GM announced a significant repurchasing of stock at an expedited pace. The company plans to buy back $10 billion worth of shares, with $6.8 billion of that being retired immediately. The company also increased its dividend by 33% to $0.12 per share. Last week, GM was the second most bullishly traded stock at tastytrade.

In overseas trading, Chinese stocks have been in a bit of a slump as their economy has struggled. Real estate stocks have been especially hard hit. Tomorrow, China will release their latest Purchasing Managers Index (PMI) which is expected to show a sustained decline in manufacturing.

Back here at home, market volume continues to be relatively subdued, and I expect it will stay that way for the week. Tomorrow, the most recent Personal Consumption Expenditures report is set for release. Core PCE prices are forecast to have increased 0.2% month-over-month and 3.5% year-over-year. The PCE report is the Fed’s preferred measure of inflation, therefore, we could see a bit of activity around its release. Next week is when I expect volume to begin increasing as we head into the final few weeks of the year, which are always busy, and we’ll get the November employment report on the 8th.

Finally, a sad note as Charlie Munger passed away yesterday at the age of 99. Munger served as Warren Buffett’s right-hand man at Berkshire Hathaway
BRK.B
. The duo is largely considered two of the most successful investors in American history. I echo part of the messaging which has brought both men so much success when I say, stick with your investing strategy and long-term plans.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.