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U.S. stocks look set for a relief rally after the market failed to sustain the upward momentum set in motion by the 50 basis-point cut announced by the Federal Reserve on Wednesday. The index futures point to a sharply higher opening on Thursday. Given the central bank’s focus on labor market statistics, traders may closely monitor the weekly jobless claims data. The results of a regional manufacturing survey and the Conference Board’s leading economic index may also create some ripples in the market.

With the Fed decision on the back-burner, earnings could get back to the spotlight, with FedEx Corp. FDX due to report after the close. Tech and small-cap stocks remain poised to rally out of the gates even as most strategists warn of a tech rally cool-off. Volatility is on the wane amid the risk-on mood, with the CBOE Volatility Index, aka VIX, down about 9%.

Futures Performance (+/-) Nasdaq 100 +1.99% S&P 500 +1.53% Dow +1.15% R2K +2.88%

In premarket trading on Thursday, the SPDR S&P 500 ETF Trust SPY jumped 1.55% to $570.08 and the Invesco QQQ ETF QQQ gained 2.00% to $480.96, according to Benzinga Pro data.

Cues From Last Session:

Wall Street closed Wednesday’s session modestly lower despite the Fed obliging with the magnitude of the cut the market was hoping for. The major indices resigned themselves to the pattern typical of a Fed decision day and moved sideways until the announcement was made. The central bank delivered and traders indulged in strong buying that took the S&P 500 Index to a new intraday high.

The dot plot suggested policymakers will likely cut rates a 25 basis points at each of the next two decisions and by at least another percentage point in 2025. While the growth outlook was left unchanged, the unemployment rate forecasts were revised. But Fed Chair Jerome Powell’s cautious comments at the press conference spooked the market, sending stocks lower in late-afternoon trading.

Index Performance (+/) Value Nasdaq Composite -0.31% 17,573.30 S&P 500 Index -0.29% 5,618.26 Dow Industrials -0.25% 41,503.10 Russell 2000 +0.04% 2,206.34

Insights From Analysts:

It could be time for defensives and small-caps to shine, now that the rate-cutting cycle has begun and the door is open for more.

LPL Financial Chief Equity Strategist Jeff Buchbinder said in a note ahead of the rate cut that value stocks outperform their growth counterparts three and six months after the initial cut. The 1995 monetary policy is the most analogous to the current one, he said, adding that during the 12 months after the cut at that time, growth stocks were slightly better. But value stocks have an edge over the first six months, he said.

Defensive sectors typically outperform in the six months after the initial rate cuts, and this was particularly evident during the 1995 period that saw a soft landing and technology buildout, the strategist said. Specifically, the defense and the telecom services sector were top performers, while consumer staples and utilities also outperformed, he said. Financials did well in the 1995 cycle and performed in-line in the 2019 period, which is more comparable to the current situation than the 2001 cycle, he added.

Surprisingly, the technology sector underperformed the S&P 500 after the 1995 rate cut, even though the internet buildout was in its early phases, Buchbinder said, referring to Netscape’s initial public offering which came after the first rate cut. Netscape is credited with creating the first internet browser.

“The takeaway here is that the technology sector, which as we know, is in a major buildout phase now with artificial intelligence, may not get a performance bump from a more accommodating Fed,” the strategist said.

Carson Group Chief Market Strategist Ryan Detrick pointed out a positive data point that bodes well for the market. In a post on X, he said the Fed has cut rates with stocks near all-time highs 20 times in the past. In all the instances, the S&P 500 was higher a year later.

The Fed has cut rates with stocks near all-time highs 20 times.

The S&P 500 was higher a year later 20 times.

S&P 500 at all-time highs now and the Fed is cutting tomorrow. pic.twitter.com/MSHhII1Cu4 — Ryan Detrick, CMT (@RyanDetrick) September 17, 2024

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Upcoming Economic Data:

The Labor Department is scheduled to release its weekly jobless claims data for the recent reporting week at 8:30 a.m. EDT. The number of individuals claiming unemployment benefits may have edged down from to 229,000 in the week ended Sept. 14, down from 230,000 in the previous week.

The Philadelphia Fed will release the results of its September regional manufacturing survey at 8:30 a.m. EDT. The diffusion index of business activity, the headline reading of the report, is widely expected to show continued contraction, albeit at a slower rate. Economists, on average, expect the index to increase from -7.0 in August to -1.1 in September.

The National Association of Realtors is due to release its existing home sales report for August at 10 a.m. EDT. Existing home sales are expected to come in at a seasonally adjusted annual rate of 3.9 million units, almost flattish with the 3.95-million-unit rate in July.

The Conference Board’s leading economic index, due at 10 a.m. EDT, is expected to show a 0.3% month-over-month drop for August, smaller than the 0.6% drop in July.

The Treasury is set to auction four- and eight-week bills at 11:30 a.m. EDT and a 10-year TIPS auction at 1 p.m. EDT.

Stocks In Focus:

, and are among the notable companies reporting their quarterly results ahead of the market open. Those reporting after the close include FedEx and Lennar Corporation LEN .

Commodities, Bonds And Global Equity Markets:

Crude futures rose in the early U.S. session, extending the gain from the previous session, as the dollar continues to be weak against most currencies barring the yen. Gold futures also firmed up. The 10-year T-note yield rose 1.9 basis points to 3.706%.

Bitcoin BTC/USD rallied strongly following the Fed decision, with the apex crypto now trading just shy of the $62.5K level.

The major Asian averages gained notably on Thursday, as they reacted to the Fed’s largesse, with Japan benefiting from the yen’s modest weakening against the greenback. European stocks were on a firmer footing in early Thursday, with traders in the region awaiting the Bank of England’s rate decision. The Monetary Policy Committee of the central bank is widely expected to keep rates unchanged at 5.25% although signaling reductions in the future.

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