Stocks Rise as September Rate Cut Expected: As financial markets eagerly anticipate the Federal Reserve’s next move,
recent developments have further solidified expectations for a rate cut in September.
Dovish signals from the Fed and a significant downward revision in U.S. payroll data have fueled optimism among investors,
leading to a noticeable rise in stock prices as the September rate cut was expected.
This report provides a detailed analysis of the market’s response to these developments,
with insights from experts on what to expect in the coming weeks.
Content
Stocks Rise as Fed Minutes Support Rate Cut Expectations
Stocks climbed after dovish Federal Reserve minutes,
and a substantial downward revision of U.S. payroll data reinforced expectations that policymakers will cut interest rates in September.
Almost every primary sector in the S&P500 advanced, extending the index’s rally in August.
Trading volume was light, with fewer than 10 billion shares traded on U.S. exchanges—the slowest trading in six weeks.
Shorter-term Treasuries outperformed, with two-year yields falling by about 10 basis points before recovering some of the decline.
Traders are now pricing in a rate cut of more than one percentage point by the end of 2024, starting next month.
Jerome Powell’s Speech at Jackson Hole
As Jerome Powell’s Friday speech at Jackson Hole approaches,
Wall Street traders have closely examined the latest Federal Reserve policy meeting minutes.
Several officials acknowledged a strong case for a rate cut in
July before the central bank voted unanimously to keep rates unchanged.
Experts Views on the September Rate Cut
Jamie Cox of Harris Financial Group said, “The Fed minutes removed all doubt about a September rate cut.
The Fed’s communication strategy aims to make its meetings less of a market-moving event,
and they are sticking to that strategy literally.”
According to Bret Kenwell at eToro, with the “vast majority” of Fed members seeing a September rate cut as appropriate,
especially before the disappointing monthly jobs report, it seems almost sure the Fed will ease next month.
Market Analysis of S&P 500 Performance
He added, “The question isn’t whether the Fed will cut rates in September, but how much?
The market is currently favoring the odds of a 25 basis point cut over a 50 basis point cut,
which seems the more likely outcome, provided the August jobs report isn’t a major disappointment.”
The S&P500 rose to around 5,620 points.
Target Corp. surged 10% after ending a streak of sales declines in the second quarter,
citing improved discretionary spending.
In contrast, Macy’s Inc. dropped 13% after giving a bearish outlook.
Jackson Hole Expectations and S&P 500 Performance
The Jackson Hole economic symposium kicks off on Thursday, with Fed Chair Powell expected to speak on Friday morning.
According to data compiled by Bespoke Investment Group,
the S&P500 is on track to enter the event with its second-strongest year-to-date performance since 2000.
Despite the S&P500’s positive performance leading up to Jackson Hole in 2024,
the index has risen only a third of the time during the symposium in previous years,
with an average decline of 1.37% over the few days it takes place, Bespoke noted.
The index has also averaged declines the next day, the following week,
and through the next Fed meeting, roughly three weeks after the symposium ends.
Market Environment Analysis and Stock Support
With the Fed poised to cut rates from restrictive levels and substantial economic and earnings fundamentals continuing,
According to Solita Marcelli at UBS Global Wealth Management, the environment supports stocks.
She believes that quality growth stocks are still well-positioned to outperform.
Neil Dutta of Renaissance Macro Research said,
“The main takeaway from these revisions is just how ‘silly’ it would be to let the next jobs report determine whether to go 25 or 50 basis points in September.
This data suggests that whatever the next job number is, it’s likely lower.”
Krishna Guha of Evercore says the large payroll revisions will reinforce the Fed’s assessment
that the labor market has been softening under restrictive policy,
necessitating timely rate adjustments to prevent the situation from worsening.
Outlook on the Rate Cut Under Current Conditions
This supports a relatively “low bar” for a 50 basis point rate cut.
The base case remains a series of 25 basis point reductions.
At Strategas, Don Rissmiller says the case for lower policy rates has strengthened.
He noted that the Fed will need to validate this rate cut cycle—likely implying multiple cuts, pointing to Powell’s upcoming speech at Jackson Hole.
Jennifer McKeown at Capital Economics expects central bankers to provide little forward guidance at the Jackson Hole symposium,
preferring to emphasize their “data dependence.”
She said, “Since most economies are expanding, inflation is easing back toward the target,
and financial markets have stabilized after the recession scare a few weeks ago,
there’s less pressure on them to steer markets than in past events. But they risk keeping rates too high for too long.”
Key Market Movements
Indices
The S&P500 rose 0.4% as of 4 p.m. New York time.
The Nasdaq 100 rose 0.5%.
The Dow Jones Industrial Average rose 0.1%.
Currencies
The Euro rose 0.2% to $1.1152.
The British pound rose 0.4% to $1.3090.
The Japanese yen rose 0.2% to 145.03 per dollar.
Cryptocurrencies
Bitcoin rose 4% to $61,664.01.
Ether rose 2.3% to $2,648.64.
Stocks Rise as September Rate Cut Expected