Michael Reinking:

Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Now, every week we are here to keep you up to date on the key trends and events driving global markets. Now, this week has been circled on traders calendars for some time now with yesterday's fed rate decision. Now, markets have now had about 24 hours to digest Chair Powell's comments, and as we record on Thursday, both the S&P 500 and the Dow Jones Industrial averages are trading at new all-time highs. Now, before we unpack the Fed, let's dive into the other market storylines of the week. Now, over the weekend, US and China held another random negotiations in Spain. Ahead of those talks, China opened an anti-dumping investigation into US analog chip companies, and China's state administration also declared that Nvidia violated anti-monopoly laws highlighting the ongoing tech tension. Now, the initial readouts from those meetings sounded modestly positive, but it seemed TikTok was the primary focus.

Now, to the delight of teens across the country and Ren McCormick in Beaumont, Utah, a framework for a TikTok deal has been reached, which will protect the national security of US dance moves like the milkshake dance, the ROBLOX inspired dwirk dance, and of course, old-school classics like the Moonwalk and of course the Footloose line dance. Now, in all seriousness, the deadline for the app to stop operating in the US was quickly approaching, and while the contours of the deal are still being worked out, reporting suggests that a US entity would operate the app along with an 80% ownership. Now, this development has opened the door to a conversation between Presidents Trump and Xi scheduled for tomorrow. Now, the current tariff detente is set to expire in November. Now, outside of TikTok, I'd imagine the topics up for discussion continue to revolve around tech and rare earth export controls and the purchase of Russian oil. Now, the easing of tension and continued AI optimism has helped to propel local indices higher with the Hong Kong Hang Seng Index now up over 30% year to date.

Now, on Tuesday, August retail sales was the last piece of major US economic data released before the Fed meeting with both headline and the control group, which feeds into the GDP, both coming in well ahead of expectations. Now, areas of strength included non-store retail, think online sales and clothing, while furniture and department store sales fell. Now, food and drinking establishment sales were also strong as football fans began to return. Now, this was a positive data point, but keep in mind this data is not inflation adjusted, so the strength can be somewhat misleading. Now, the market response to the data was pretty limited, which brings us to the moment you've all been waiting for, the setup heading into this week's FOMC meeting was one of the more intriguing ones in recent memory if for no other reason than the personal drama happening behind the scenes. Now, coming into this week, we didn't even know for sure who would be voting.

On Monday the Senate confirmed Stephen Moran to join the Board of Governors, giving him just enough time to sit down with HR, set up his email and pull an all-nighter, filling out the paperwork for the summary of economic projections, also allowing Fed watchers to play their own version of Where's Waldo, though as expected, his dots were pretty easy to identify. Now, on Monday night a US appeals court struck down President Trump's bid to fire Lisa Cook. Now, outside of those two stories, Chair Powell also had to deal with two dissenters at the last meeting, including one who was jockeying to replace him and repeatedly being called names by the White House. Now, if newly listed NYC IPO StubHub was selling tickets for the event, I would've definitely been in the market. And with all that being said, there wasn't too much of a doubt about the Fed's action at this meeting with the focus more about signaling going forward. The Federal Reserve cut rates by 25 basis points and the language in this statement evolved as expected with a slight downgrade of economic activity and an acknowledgement of the slowdown in job growth.

Now, as Chair Powell did at Jackson Hole, the committee elevated this side of its mandate saying the downside risk to employment have risen. The committee acknowledged the increase in inflation, but continued to categorize it as, somewhat elevated. Now, while the forward guidance evolved in a more dovish way, suggesting additional cuts are on the horizon. Now, the thing that was most striking within the statement was the lack of dissension with Stephen Moran, the lone dissenter calling for a 50 basis point cut. Now, the prevailing consensus heading into the meeting was that at least Fed Governor Waller would be in that camp. Now, there was some speculation that the broad consensus was a show of support for Fed independence, but an article before the meeting from our favorite Fed whisperer, Nick Timiraos at the Wall Street Journal, may have shed some light on the dynamic. He pointed out that sometimes officials who don't fully support a decision fall in line with the majority so as to be able to help craft the language in the statement, so the change in forward guidance seemed to be enough to appease them.

That being said, the dot plot reflected the diverse views in the room. The median dot called for two additional cuts through the end of 2025, but there was a split pretty evenly between officials who called for one or less cuts through the remainder of this year and two or more, including Moran's outlier of five cuts. Now, the median 2026 dot only called for one additional cut next year, but there was a wide dispersion with rate expectations ranging from two point a half to 4%. Now, any drama stopped in the locker room and Chair Powell was all about business when he took the field, not fanning any of the flames. His commentary was largely in line with what he said at Jackson Hole with some minor tweaks. He noted that with the risks in the labor market, it was now time for the Fed to take a step toward neutral, suggesting this cut was risk management, similar to language used last year. He made sure to note that the Fed was not on a preset course, but maintained optionality suggesting that each meeting would be live with the decision driven by the data.

Now, since this spring, we've been evolving the analogy of the Federal Reserve setting the proverbial table for rate cuts to begin in the fall. This has been a slow process, seemingly frustrating some investors in the short term along the way. Continuing with that analogy, after Jackson Hole, there were some past hors d'oeuvres and yesterday it initially seemed like investors were disappointed that the meal wasn't from a Michelin five-star restaurant, but the service was good and it hit the spot, so after an evening to think about it, markets resumed where they left off. For the week the S&P 500 is up about 1%, while interest rate sensitive small caps outperform up over 2%, which considering the rally coming into the event is a pretty good outcome. Now, after today's initial jobless claims data reversed last week's increase, Treasury yields have ticked up slightly, but keep in mind, they have been moving lower since mid-July. Now, as we look forward to tomorrow, outside of the Trump/Xi phone call, it is also a big liquidity event with triple-witch expiration and the quarterly index re-balances.

The closing auction on the NYSE associated with this event has consistently exceeded a billion shares. Now, with the rolling off of these positions and about half of the companies in the S&P in the buyback blackout window ahead of earnings, it'll be interesting to see if volatility starts to expand next week. Now, the key economic data next week includes PMIs and PCE, negotiations in Washington to avoid a government shutdown will also get some attention. Now, that's going to do it for this week. Thanks for spending some time with us. If you liked today's episode, please tell a friend or leave a comment wherever you listen to your podcasts. Have a great weekend. Thanks for joining me. I'm Michael Reinking, and we'll talk to you again next week.

Speaker 2:

That's our conversation for this week. Remember to rate, review and subscribe wherever you listen and follow us on X at ICE House Podcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.