The Fed leaves interest rates right where they are

The main event of the week was the Federal Open Market Committee meeting, with the Fed deciding to leave rates unchanged at 5.25%-5.5%, as widely expected by the market. The median preference for the projected fed funds rate at the end of 2023 held steady after Wednesday’s Fed decision, aligning with the previous June forecast at 5.6%. This suggests the Fed is leaning toward one additional rate increase in either one of the two remaining meetings this year. FOMC members have scaled back their projected rate cuts for next year, now indicating a total of 50 basis points of cuts for 2024, a more hawkish shift from the previous June projection of a full percentage point reduction.

Powell delivers balanced remarks

During his news conference, Fed Chair Jerome Powell cautiously balanced his tone. He warned the path to the 2% inflation target has a long way to go, possibly keeping interest rates elevated for longer. At the same time, Powell indicated the Fed’s readiness to proceed carefully based on forthcoming economic data without a firm commitment to additional rate hikes.

Treasury yields hit 17-year highs

Yields for two-year Treasury notes reached 5.2% on Thursday, marking their highest point since July 2006. Simultaneously, the 10-year yield surpassed 4.4%, reaching levels last seen in November 2007.

Cisco set to acquire Splunk

Cisco announced an agreement to acquire cybersecurity company Splunk in a deal valued at approximately $28 billion, or $157 per share. The purchase price implies a premium of 31.3% on Splunk’s Sept. 20 closing of $119.59. Splunk’s stock surged 21% on the news.

Jamie Dimon visits Detroit

JPMorgan CEO Jamie Dimon made a noteworthy visit to Detroit, where he delivered a speech at the Detroit Economic Club at the MotorCity Casino and Hotel. His appearance marked the 10-year anniversary of JPMorgan’s substantial $200 million investment in the city aimed at catalyzing business growth in Detroit. Dimon expressed concerns about the potential resurgence of inflationary pressures due to ongoing elevated government spending.

Stock market highlights

The stock market witnessed a volatile week as the FOMC meeting weighs on investor risk sentiment. Interest rate-sensitive sectors like consumer discretionary and real estate underperformed, while defensive angles like health care fared better. Among large cap companies, the best performer was Splunk, followed by Humana and CBOE Global Markets. The laggards were Samsara, Block and Celsius Holdings. FedEx made headlines after the company reported mixed quarterly results and raised its earnings guidance.

UAW expands strike

On Friday, the United Auto Workers revealed its plan to widen the scope of strikes to 38 facilities in 20 states, primarily targeting parts and distribution sites at General Motors and Stellantis. Conversely, Ford won’t be affected by additional strikes, as negotiations proceed.

What to watch

The Fed’s preferred inflation gauge, the Price Consumption Expenditure Index, is due Friday, with economists predicting a rise in the annual headline PCE from 3.3% in July to 3.5% in August. Core PCE is expected to dip slightly from 4.2% to 3.9%. Several Fed members will also make public appearances, including Federal Reserve Chair Powell hosting a town hall with educators Thursday. On the same day, the final second-quarter GDP reading will also be released. Earnings reports in the week ahead include Costco and Cintas on Tuesday; Micron Technology and Paychex on Wednesday; Nike, Jabil Circuit and CarMax on Thursday and Carnival on Friday.