Three Things We Heard at The Rate Cut After-Party
1. The housing market may have started to find its footing.
While the theoretical implications of interest rate cuts suggest broad and immediate impacts, it is important to recognize that bond markets had already anticipated a significant policy shift. Consequently, despite the Federal Reserve’s formal initiation of the rate-cutting cycle, mortgage rates have been falling for five months. In fact, the Mortgage Bankers Association’s 30-year fixed mortgage rate declined for the eighth straight week, marking its longest downtrend since 2019. The rate for a 30-year mortgage is about 6%. That’s more than a full percentage point lower than its most recent peak in May, and well below the 2023 peak when rates approached 8%.
2. China shook up global markets with policy announcements in response to weak macro data and property pressures. The People’s Bank of China introduced several measures:
• Monetary easing: A 20-basis-point policy rate cut, a 50-basis-point reserve requirement ratio (RRR) cut, and a 50-basis-point interest rate cut on existing mortgages. The RRR cut may allow more bank lending, though low net interest margins limit cost reductions. The mortgage cut could slightly boost household finances and consumption.
• Housing support: The PBOC will now cover up to 100% of bank loans to buy unsold housing, up from 60%. Estimating the property downturn’s bottom is challenging, as prices remain relatively stable, but investment and sales are significantly down.
• Equity market boost: A swap facility for securities firms, funds and insurance companies to borrow directly to buy stocks. Government entities are likely to use these facilities to purchase onshore equities, boosting sentiment and liquidity, though their impact on economic growth and corporate earnings is uncertain.
3. All the while, U.S. stocks continued to make gains. The S&P 500 made four new all-time highs this week, and currently sports a year-to-date return of over +20%—the best year-to-date performance since 1997.
The S&P 500 has spent roughly 66% of all trading days this year within 1% of an all-time high, well above the historical average. Over the last seven decades, the S&P 500 has spent only 20% of the time within 1% of an all-time high, (inclusive of being at an all-time high).
Counterintuitively, runs like this can create uncertainty for investors. During periods of market uncertainty, consult with your financial advisor to ensure your investment strategy aligns with your long-term objectives.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: J.P. Morgan Private Bank, September 27th 2024, 3 things we heard at the rate cut after-party, by Sarah Stillpass, Global Investment Strategist, and Alan Wynne, Global Investment Strategist, J.P. Morgan Private Bank
