Investors have plenty to worry about as global events and pressures closer to home continue to trouble markets.

Stock valuations look stretched after two years of impressive gains. The Federal Reserve may not lower interest rates as much as hoped. The election is exposing social divisions, and escalating conflict in the Middle East threatens to roil oil markets. To top it all off, Hurricane Milton is slamming Florida almost two weeks after Hurricane Helene hit.

And yet the Dow Jones Industrial Average and S&P 500 both climbed to records on Wednesday. The Nasdaq isn't far from its high. How can that be?

The short answer is that there's one thing investors are a lot less worried about than they used to be. At the beginning of the year, a lot of people expected a recession, or at least a noticeable economic slump. It hasn't happened, and the latest evidence from the labor market suggests it won't be soon.

It's true that any hopes the Fed will keep cutting rates in massive half-point increments were further dashed by the minutes of the last meeting published Wednesday. But officials nevertheless see more cuts on the way -- probably 1.5 points' worth by the end of 2025. On the day new inflation data are published, that's good news.

There is even some optimism that Milton won't be as devastating as feared after it reached land as a Category 3 storm, rather than a stronger one.

The good feelings in markets may have staying power. The AAII Sentiment Survey shows almost half the investor club's members are bullish and 30% neutral, with just about 20% expecting markets to weaken. Last November, more than 50% were bearish.

Despite all the reasons to be distressed, traders are still looking on the bright side.

-- Brian Swint

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Fed's Minutes Reveal Debate Over Size of September Rate Cut

Federal Reserve officials were divided over how much to lower interest rates when they met in September, according to the minutes of the meeting. Almost all of the policymakers settled on the half-point cut the Fed took, with just one voting member favoring a quarter-point cut.

   -- After holding rates steady since July 2023 and not cutting rates since 
      2020, officials agreed that the upside risks to inflation had diminished, 
      and most said that the downside risks to employment had increased. Fed 
      Gov. Michelle Bowman dissented from the 11-person majority. 
 
   -- Some officials said there was a reasonable case for a quarter-point cut 
      in July, and more recent economic data convinced them to cut in 
      September. Stronger than expected jobs growth for September and a 4.1% 
      unemployment rate have tempered expectations for a November rate cut. 
 
   -- Fed officials agreed, according to the minutes, that a larger half-point 
      cut in September wasn't a signal that they were worried about the 
      economy. Futures traders see a 79% probability of a quarter-point cut by 
      the Fed when it meets next month, with a 21% probability of a pause. 
 
   -- The latest economic projections by Fed officials showed they expect 
      interest rates to fall one percentage point this year, and another 
      percentage point next year. That would put the target range around 3.25% 
      to 3.5% by the end of 2025. 

What's Next: Fed officials speaking this week have indicated additional rate cuts will be called for in the coming months. But they have also signaled they are in no rush. A cloudy crystal ball, with a range of plausible economic outcomes ahead, argues for a slow-and-steady descent.

-- Nicholas Jasinski and Janet H. Cho

***

Hurricane Milton Hits Florida. What It Means for Markets.

Hurricane Milton swept in over Florida's west coast late Wednesday bringing heavy rain, strong winds, life-threatening conditions, and wreaking short-term havoc on U.S. economic data.

   -- Milton hit near Siesta Key in Sarasota County at about 8:30 p.m. Eastern 
      Time. Tampa Bay was spared a direct hit, easing some fears of 
      catastrophic damage there -- earlier this week, analysts had warned the 
      hurricane could cause $175 billion in losses in the densely populated 
      area. 
 
   -- The region is still recovering from Hurricane Helene and there is a risk 
      the two weather events could clip consumer spending and growth in the 
      regions affected and send food prices higher. They are also likely to 
      distort the October jobs report, economists from Citi and J.P. Morgan 
      warned. 
 
   -- Two people were killed by a tornado in Florida's St Lucie County, the 
      local fire department said in a statement to NBC. Millions of Florida 
      residents were without power early Thursday, thousands of flights were 
      canceled, and Hurricane Milton tore the roof off Tropicana Field, the 
      home stadium of the Tampa Bay Rays baseball franchise. 
 
   -- The hurricanes could also affect stocks. The performance of Disney's 
      theme parks has been a concern for investors and its flagship Disney 
      World Resort in Orlando had to close its doors amid safety concerns, 
      along with Universal Studios and SeaWorld. Meantime, airlines have been 
      canceling flights and insurers are likely to have to cover big losses. 

What's Next: Beyond the labor-market impact, Milton could lead to an increase in the cost of goods, including food and energy prices. Fruit prices could also be affected because Florida accounts for 17% of the nation's citrus production, with the center of the state serving as the highest-producing region.

-- Elsa Ohlen, Megan Leonhardt, and George Glover

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Healthcare Firms Want to Boot FTC's Khan Off the Insulin Case

CVS Health, UnitedHealth, and Cigna want to disqualify Federal Trade Commission Chair Lina Khan and two other commissioners from participating in the agency's own administrative case that accuses the companies of unfairly jacking up insulin prices through their pharmacy benefit manager units. They say the three FTC officials are biased.

   -- Each of the companies filed a motion in the agency's case, saying the 
      participation of Khan and Commissioners Rebecca Kelly Slaughter and 
      Alvaro Bedoya, both Democrats, in the proceedings violates the companies' 
      due process rights, pointing to public statements by the officials. The 
      FTC wouldn't comment. 
 
   -- Khan, nominated by President Joe Biden as the FTC's youngest ever chair 
      in 2021, has been fighting the pharmacy benefit managers. They 
      collectively control 80% of all prescriptions in the U.S., but the FTC 
      says rebates from drugmakers give the PBMs reason to pass on higher 
      prices to consumers. 
 
   -- The healthcare companies say that the three officials are unable to serve 
      as an objective tribunal. The case was filed as an administrative 
      complaint, so it won't be decided in a court but through the agency's 
      internal proceedings. The healthcare companies can appeal the decision in 
      federal court. 
 
   -- The price of insulin has become a focus of the campaign, along with other 
      healthcare costs. Democratic candidate Kamala Harris has promised to cap 
      the price of it at $35 a month for all. Currently, a $35 monthly copay is 
      only for those on Medicare. 

What's Next: Separately, Amazon.com's pharmacy division said it is expanding its same-day prescription medicine delivery platform to 20 new cities next year. The company said the expanded operation will more than double the number of cities where it operates.

-- Anita Hamilton and Liz Moyer

***

Boeing, Striking Workers in Blame Game After Talks Unravel

Boeing and the union representing 33,000 striking machinists are now in a blame game after a third round of negotiations on a new contract broke down. Each side accused the other of not working to resolve the impasse that has idled Boeing's jet manufacturing facilities in the Pacific Northwest.

   -- Boeing Commercial Airplanes CEO Stephanie Pope said Boeing bargained in 
      good faith and offered higher take-home pay and retirement, but withdrew 
      its latest offer after the International Association of Machinists and 
      Aerospace Workers made unacceptable, "non-negotiable demands." 
 
   -- The union said Boeing refused to propose additional pay increases, 
      retirement contributions, and bonuses. The union wants 40% raises over 
      four years, plus commitments for production and pension plans. Workers 
      have been on strike since Sept. 13. Boeing's recent offer included a 30% 
      pay raise. 
 
   -- S&P Global Ratings estimates strike costs of more than $1 billion a month 
      and put Boeing's credit rating on watch for a possible downgrade, risking 
      its investment-grade status. S&P estimates Boeing will burn through $10 
      billion in cash this year because of a manufacturing overhaul and the 
      strike. 
 
   -- Boeing is thinking about raising at least $10 billion by issuing new 
      shares, Bloomberg reported, adding that the company is working with 
      advisors to consider its options. Investors widely expect an equity 
      raising by Boeing, MarketWatch reported. A Boeing spokesperson didn't 
      comment on the MarketWatch report. 

What's Next: CFO Brian West is meeting with company lenders this week and has said Boeing is actively managing liquidity, is committed to supporting its balance sheet, and will preserve its investment-grade credit ratings. Boeing will report third-quarter financial results on Oct. 23.

-- Janet H. Cho and Al Root

***

Palantir Technologies Reveals Stake in EV Start-Up Faraday

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October 10, 2024 06:43 ET (10:43 GMT)

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