It Girl Identity: Issue 16

It Girl Identity Newsletter

Grab your dirty chai latte and read what's moving markets this week, learn about the federal funds rate, and enjoy our curated It Girl Identity recommendations!

What’s Moving Markets

U.S. stocks finished at record highs after the Fed’s aggressive 50bps rate cut announcement, seen as a positive sign for the U.S. economy.

What’s Up

• Microsoft (MSFT): Shares jumped 1.8% after a $60B stock buyback and dividend increase.

• Universal Music (UMG.AS): Stock increased by 3.5% on forecasts for strong revenue growth through 2028.

• Oil Prices: Global oil prices rose amid OPEC production cuts. This could lead to higher fuel costs.

• Rexel (RXL): Gained 10% after rejecting a buyout offer from QXO, calling it undervalued.

• Top S&P 500 Gainers: Nike +6.84%, NRG Energy +6.43%, Super Micro Computer +4.59%, Norwegian Cruise Line +3.36%, Intel +3.31%, Broadcom +2.20%.

What’s Down  

• Apple (AAPL): Dropped after China restricted the use of iPhones for government officials, combined with reports of weak iPhone demand. Investors worry about slowing revenue.

• Oracle (ORCL): Dropped 5% despite strong earnings, as cloud growth slowed.

• Top S&P 500 Losers: FedEx -15.23%, Lennar -5.33%, Old Dominion Freight Line -5.16%, The Mosaic -4.38%, Albemarle -3.69%, Moderna -3.43%.

Markets and Economy

• Macroeconomic Conditions:

  • Fed’s Aggressive Rate Cut: Last Wednesday, the FOMC cut their Federal Funds range by 50bps for the first time since 2020 - a rather aggressive cut to meet cooling in labor demand and steady inflation declines. This signals a softer landing for the economy and improves market outlook.

• Boeing Strike Continues: Boeing (BA) faces a prolonged strike as 33,000 workers rejected a new labor contract. Union leader Jon Holden stated the strike could “go on for a while”, costing Boeing billions. Historically, such strikes have lasted 60 days, with Bank of America predicting Boeing will likely meet the union’s 40% wage hike demand.

• Hedge Fund Two Sigma’s Trading Scandal: The hedge fund Two Sigma is likely going to pay as much as $100 million to the SEC due to a trading scandal involving misconduct and unauthorized trading practices.

IPOs & Mergers and Acquisitions

• Uber and Waymo Partner on Autonomous Rides: Uber (UBER) and Waymo, owned by Alphabet (GOOG, GOOGL), are expanding their self-driving car partnership to Austin and Atlanta by 2025. Uber recently partnered with GM’s (GM) Cruise, and Lyft (LYFT) is also making deals with autonomous vehicle makers.

Earnings Calendar

This Week's Major U.S. Economic Reports & Fed Speakers

Here is a quick breakdown of this week’s Fed Speaker events and economic indicators, what they mean, and their forecasts!

Monday, September 23

Speakers: Atlanta Fed President Raphael Bostic, Chicago Fed President Austan Goolsbee, Minneapolis Fed President Neel Kashkari

• Chicago Fed National Activity Index: Measures overall economic activity and inflationary pressures.

• S&P Flash U.S. Services PMI (Sept): Preliminary estimate of services purchasing manager’s index. Forecast: 55.4 (Previous: 55.7).

• S&P Flash U.S. Manufacturing PMI (Sept): Advance data on U.S. manufacturing sector. Forecast: 48.4 (Previous: 47.9).

Tuesday, September 24

Speakers: Federal Reserve Governor Michelle Bowman

• Consumer Confidence (Sept.): Forecast: 102.8 (Previous: 103.3).

• S&P Case-Shiller Home Price Index (20 cities) (July): Measures changes in residential home prices across 20 major U.S. metropolitan areas. Important for assessing the health of the housing market and consumer wealth. (Previous: 6.5%).

Wednesday, September 25

Speakers: Federal Reserve Governor Adriana Kugler

• New Home Sales (Aug): Forecast: 700,000 (Previous: 739,000).

Thursday, September 26

Speakers: Federal Reserve Governor Adriana Kugler and Boston Fed President Susan Collins, Federal Reserve Governor Michelle Bowman, Federal Reserve Chair Jerome Powell, New York Fed President John Williams, Federal Reserve Vice Chair for Supervision Michael Barr, Federal Reserve Governor Lisa Cook, Minneapolis Fed President Neel Kashkari speaks with Fed Vice Chair for Supervision Michael Barr

• Initial Jobless Claims (Sep. 21): Number of new claims for unemployment benefits, indicating the health of the job market. Forecast: 223,000 (Previous: 219,000).

• Pending Home Sales (Aug): Forecast: 1.0% (Previous: -5.5%).

• GDP (Second Revision) (Q2): Forecast: 2.9% (Previous: 3.0%).

• Durable Goods Orders (Aug): Forecast: -3.0% (Previous: 9.8%).

Friday, September 27

• Personal income (Aug): Measures the total income received by individuals before taxes. An increase can signal higher consumer spending power. Forecast: 0.4% (Previous: 0.3%).

• Personal spending (Aug): Measures the total amount spent by consumers. Higher spending indicates stronger economic activity. Forecast: 0.3% (Previous: 0.5%).

• PCE Index (Aug): Reflects changes in prices of goods and services consumed by individuals. A lower rate indicates weaker inflation pressures. Forecast: 0.1% (Previous: 0.2%).

  • PCE (Y0Y): Annual change in the PCE index, reflecting inflation trends over the year. Forecast: 2.2% (Previous: 2.5%).

  • Core PCE Index (Aug): Measures price changes excluding food and energy, which can be volatile. Provides a clearer view of inflation trends. Forecast: 0.2% (Previous: 0.2%).

  • Core PCE (YoY): Annual change in the core PCE index, focusing on long-term inflation trends. Forecast: 2.7% (Previous: 2.6%).

• Consumer Sentiment (Final) (Sept): Forecast: 69.2 (Previous: 69.0).

Sources: BusinessInsider, New York Fed, MarketWatch, WSJ

Understanding the Federal Funds Rate

For the past week, all eyes have been on the Federal Reserve as the Chair finally imposed the long-awaited interest rate cut—the first since 2020. In this issue, we’re going to go over what the “rate” actually means and what effects this will have looking forward. Understanding how the Federal Reserve’s decisions on interest rates impact the economy will help you navigate the financial markets more effectively. 

Disclaimer: Information shared here is for educational purposes only. Consult a financial advisor for personalized advice.

What is the Federal Funds Rate? The Federal Funds rate is the interest rate at which banks lend money to each other overnight, which is a key tool used by the Federal Reserve, or US Central Bank, to influence the broader economy. The FFR affects the entire financial system, including mortgage rates, credit card interest, and yields on savings accounts.  

Why Cut?  

• Economic Data: First, it’s important to understand the Fed’s Dual Mandate: keep inflation low and maintain maximum employment. There is essentially an inverse relationship between these two variables. Over the past few months, inflation has decreased closer to the Fed’s 2% target, and core CPI recorded it at 2.5% for August, down from 9.1% in June 2022. On the other hand, the unemployment rate and jobless claims have been ticking up. 

• Effects: An interest rate cut like the one announced on Wednesday makes borrowing cheaper, which stimulates economic activity. Economists debated whether the cut would be 25 or 50 bps, but with labor market concerns, Jerome Powell decided a more aggressive cut was needed.  

How Does This Affect the Economy? Since the cut, investors note strong optimism. The S&P 500 added 1.7% for its 39^th record high this year alone and the Nasdaq 100 similarly climbed 2.6%. Mortgage rates hit the lowest levels since February 2023, with the average rate for a 30y fixed loan at 6.09%, which reflects positivity for homebuyers and a strong outlook for cooling shelter inflation. 

Other Effects to Look For: 

• Increase in Consumer Spending: Lower rates reduce the cost of borrowing for consumers, as it affects mortgages, auto loans, and credit card debt. People are likely to make larger purchases, which contributes to overall economic growth. 

• Business Investment Encouraged: Lower rates also make it cheaper for businesses to borrow. They are more likely to invest in new projects, expansion, and hiring when financing is cheaper, which then leads to job creation and increased production. 

• Housing Market: Home loans, as referenced earlier, will be more affordable, which increases demand for houses and supports growth in the housing market. Shelter inflation has remained sticky over the past few years due to limited supply, but cheaper construction costs could help alleviate the imbalance. 

• Lower Savings Returns: While interest rate cuts also reduce returns on savings accounts and bonds, this can lead to a shift in investment strategies as people look for higher returns in riskier assets, which explains the climbing stock market and cryptocurrencies. 

What’s Next? So far, it’s unknown exactly what the Federal Reserve plans to do next. Jerome Powell said he will keep all options open and consider each economic indicator from now until November, when the next FOMC meeting is. The Fed historically moves in quarter point increments, but economists project the interest rate to decrease by another 50 bps by the end of this year.  

It Girl Recommendations

Shop Our Other Recommendations Here: health, fashion, fitness, education, beauty, and skincare...

We’re bringing you some recommendations early on in the semester, whether you’re a seasoned student or just starting college, to help you stay motivated and on track for a stress-free semester!

1. Daily Planner

2. Blue Light Glasses

3. Flora App

4. Noise-cancelling headphones

Financial Fashion

As we head into fall, we will provide you with some cozy outfit inspiration for the next few months ✨

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See you next Monday, It Girls!

With Love,

It Girl Identity