Market Outlook: What to Watch for the Week of September 16, 2024

Federal Reserve Interest Rate Decision

Anticipated Rate Cut

The Federal Reserve’s interest rate decision, scheduled for September 18, 2024, is the most anticipated event of the week. Analysts widely expect a 25 basis points cut, which would bring the federal funds rate down from its current range of 5.25% to 5.50%. Some experts even speculate a more aggressive 50 basis points reduction, although this is less likely.

Market Implications

The expected rate cut has already influenced various market segments. For instance, mortgage rates have seen a decline, with the average 30-year fixed mortgage rate dropping to 6.2% as of September 12, 2024. However, experts suggest that mortgage rates may not fall significantly further, as they have already priced in the anticipated rate cut. The potential for additional decreases in mortgage rates will depend on economic indicators such as inflation and employment trends.

Impact on Non-Banking Financial Companies

The anticipated rate cut is expected to bolster non-banking financial companies (NBFCs). Lower interest rates generally reduce borrowing costs, making it easier for these companies to expand their lending activities. This could lead to increased profitability and stock price appreciation for NBFCs.

Retail Sales and Holiday Forecast

Deloitte’s Holiday Retail Sales Forecast

Deloitte’s annual holiday retail forecast, released on September 12, 2024, projects a 2.3% to 3.3% increase in holiday retail sales compared to the previous year. This growth is expected to result in total sales ranging between $1.58 trillion and $1.59 trillion during the November to January period. E-commerce sales are projected to grow by 7% to 9%, reaching between $289 billion and $294 billion.

Economic Factors

Several economic factors are influencing this forecast. Healthy growth in disposable personal income and a stable labor market are positive indicators. However, rising credit card debt and the depletion of pandemic-era savings may weigh on consumer spending. Inflation, which rose by 2.5% year-over-year in August, is another factor that could impact purchasing power.

Market Sentiment

The retail sector is likely to experience mixed sentiment this week. While the overall outlook is positive, the slower growth rate compared to the previous year (4.3% in 2023) may temper investor enthusiasm. Companies with strong e-commerce platforms are expected to perform better, given the projected growth in online sales.

Housing Market Data

Current Trends

The U.S. housing market continues to exhibit a complex mix of trends. Home prices have increased by 5.4% annually, according to the S&P CoreLogic Case-Shiller Home Price Index. Despite this, the market remains highly unaffordable, driven by low inventory levels. Mortgage rates have recently dropped, with the average 30-year fixed mortgage rate at 6.2%, the lowest level since February 2023.

Inventory and Price Cuts

Housing inventory has increased but remains 33% lower than pre-pandemic averages. Approximately 25% of Zillow listings experienced price cuts in June, the highest rate for that time of year since 2018. This indicates a potential cooling in the housing market, which could lead to more balanced conditions if inventory levels continue to rise.

Future Outlook

Experts predict that while home prices may begin to decline late in 2024 due to increasing inventory, substantial national price drops are not anticipated. Mortgage rates will need to return to more normal levels (upper 4% to lower 5%) for a more balanced market. The National Association of Realtors has implemented new rules affecting buyer and seller commissions, which could impact affordability, especially for first-time buyers.

Earnings Reports

FedEx (FDX)

Earnings Expectations

FedEx is set to release its first-quarter fiscal 2025 earnings report on September 19, 2024. The Zacks Consensus Estimate for earnings per share (EPS) is $4.87, indicating a 7% improvement from the year-ago actual. Revenue expectations are pegged at $22.12 billion, suggesting a 2% increase from the prior year.

Challenges and Opportunities

Despite the positive earnings forecast, the consensus estimate has been revised downward over the past 60 days. FedEx’s earnings surprise history is generally positive, but for this quarter, it has an Earnings ESP of -3.24%, with the Most Accurate Estimate at $4.71 per share. The company is facing challenges due to demand erosion, particularly in its Express unit, which is expected to see a 1.1% revenue decline compared to the previous quarter. However, cost-cutting initiatives through its DRIVE program are anticipated to aid its bottom-line performance.

General Mills (GIS)

Earnings Expectations

General Mills is scheduled to report its Q1 2025 earnings results on September 18, 2024. Analysts project revenue of $4.8 billion for this quarter, down from $4.9 billion reported in the same period last year. The consensus estimate for earnings per share (EPS) is $1.05, compared to an adjusted EPS of $1.09 in Q1 2024.

Market Sentiment

The company faces challenges due to inflationary pressures affecting consumer behavior, with demand for value-driven, healthy, and convenient food options. Input cost inflation is expected to be around 3-4% for fiscal year 2025, primarily from labor costs. Last quarter, adjusted gross margin fell to 34.9%, and sales across most segments, except Foodservice, experienced declines. The bearish outlook is reflected in the fact that all ten analysts covering the stock have revised their earnings estimates downward in the past 90 days.

Darden Restaurants (DRI)

Earnings Expectations

Darden Restaurants is also set to release its Q1 2025 earnings report on September 19, 2024. Analysts forecast a year-over-year increase in sales and profit, although specific revenue estimates were not provided in the text.

Market Sentiment

Darden Restaurants is expected to benefit from its diversified portfolio of dining brands, which includes Olive Garden and LongHorn Steakhouse. The company has been focusing on cost management and menu innovation to drive growth. However, economic pressures such as rising labor costs and inflation could impact its profitability.

Lennar (LEN)

Earnings Expectations

Lennar, a major homebuilder, is another company to watch this week. While specific earnings estimates were not provided in the text, the company’s performance will be closely tied to the broader housing market trends discussed earlier.

Market Sentiment

Lennar is expected to benefit from the recent decline in mortgage rates, which could spur homebuying activity. However, the low inventory levels and high home prices may continue to pose challenges. Investors will be keen to see how Lennar navigates these market conditions and whether it can capitalize on the anticipated increase in housing inventory.

Conclusion

The week of September 16, 2024, is set to be a pivotal one for the financial markets. The Federal Reserve’s interest rate decision will likely set the tone for market sentiment, with a 25 basis points cut being the most anticipated outcome. Retail sales data and holiday forecasts suggest moderate growth, tempered by economic pressures such as inflation and rising credit card debt. The housing market remains complex, with high prices and low inventory levels, although recent trends indicate a potential cooling.

Earnings reports from major companies like FedEx, General Mills, Darden Restaurants, and Lennar will provide further insights into the state of the economy. While FedEx and General Mills face challenges, their cost-cutting initiatives and strategic focus areas offer some optimism. Darden Restaurants and Lennar are expected to benefit from their respective market positions, although economic pressures could impact their performance.

Overall, investors should brace for a week of significant developments, with the potential for both opportunities and challenges. The key will be to stay informed and agile, ready to adapt to the evolving market conditions.