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With an hour and half to go, traders are getting less confident that the Federal Reserve will opt for a larger half-point cut.
Fed-funds futures now see a 55% chance of a half-point cut today, down from 64% this morning. The odds of a quarter-point cut are up to 45%—a bit worse than a coin flip.
Recent chatter among former Fed officials and market commentators has made the case for a larger cut this afternoon, though others like former St. Louis Fed President James Bullard have pushed back against that notion.
A larger cut could signal central bankers are more worried about the labor market than they’ve previously expressed. On the flip side, a quarter-point cut could leave some to believe the Fed is putting itself at risk of getting behind the curve on cuts.
We’ll know where the Fed stands at 2 p.m. ET.
(David Paul Morris/Bloomberg)
The fact that the Fed is about to start lowering interest rates should be great news for people looking to buy a house. Mortgage rates have already been sliding in anticipation of rate cuts. Investors seem to have figured that out though.
Two exchange-traded funds focusing on homebuilders and other housing-related companies have recently hit all-time highs but are pulling back ahead of the Fed announcement on rates.
The SPDR S&P Homebuilders and iShares U.S. Home Construction ETFs, which own a mix of top builders such as D.R. Horton, Lennar and Toll Brothers as well as housing-related retailers and suppliers like Home Depot, Lowe’s, Sherwin-Williams, Carrier Global and Lennox International, were down 0.5% and 0.6% respectively late Wednesday morning.
Lower interest rates should help spur demand for residential real estate. To that end, housing starts jumped in August. But this appears to be priced into housing stocks. Both builder ETFs are trading at forward price-to-earnings ratios above their historical averages following epic rallies as of late.
The two funds have each gained more than 50% in the past 12 months, more than double the return for the S&P 500 during the same time frame. That’s attracted the interest of short sellers, who have been increasing their bearish bets on builders and other housing stocks.
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