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The Future Is Finally Here
After a year of waiting, investors were finally rewarded with an interest rate cut when the Federal Reserve’s Federal Open Market Committee (FOMC) cut the federal funds rate by 50 basis points (0.50%) on September 18th. In announcing the decision, the FOMC noted that it had “had gained greater confidence that inflation is moving sustainably toward 2 percent” and “that the risks to achieving its employment and inflation goals are roughly in balance.”
The FOMC’s decision followed August’s release of the Consumer Price Index (CPI) report. Monthly inflation came in at 0.2%, in line with expectations. For the 12-month period ending in August, inflation was 2.5%, the lowest level since February 2021. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures Index (PCE), offered even better news, with inflation coming in at 0.1% for August and 2.2% for the 12-month period.
Partly driving the FOMC’s decision were economic reports indicating a softening in what had been a robust economy. The Institute for Supply Management’s monthly survey of purchasing managers came in below expectations for August, while the Bureau of Labor Statistics jobs report indicated that nonfarm payrolls expanded by only 142,000 jobs during the month (against expectations of 161,000 jobs). Both the equity and bond markets responded favorably to the cut in interest rates, with the Core Large Cap Equity and Core Fixed categories gaining 2.5% and 1.3%, respectively, for the month of September.
For the Nasdaq Dorsey Wright Explore portion of HANDLS Indexes, interest-rate-sensitive categories continued to be the biggest beneficiaries of softening inflation and lower interest rates. Utilities saw the biggest boost, gaining 6.6% for the month of September, pushing year-to-date returns to an eye-popping 30.2%. REITs also continued their recent hot strike, gaining 3.2% for the month. At the other end of the spectrum, MLPs were the worst performer for the third straight month (-0.4%) but remained up 17.8% on the year.
HANDLS indexes delivered positive returns across the board in September:
- Nasdaq 5HANDL™ Index: 1.8%
- Nasdaq 7HANDL™ Index: 2.2% (1.3x leveraged)
- Nasdaq 10HANDL™ Index: 3.2% (2.0x leveraged)
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