Janice R. Andrews
New economic figures released on Thursday showed that the U.S. economy is still strong, which could lead the Federal Reserve to lower interest rates later this year. This caused stocks to rise sharply. The S&P 500 saw a small rise of 0.3%, which shows that it is recovering from recent losses and paving the way for a fourth straight monthly gain. The Nasdaq 100 also went up by 0.5%, thanks to positive mood in tech stocks. In the meantime, Treasuries stayed mostly the same. The 10-year yield stayed the same at 3.86%.
In a “Goldilocks” situation, where things are neither too hot nor too cold, the stock market is doing very well. People are expecting the Federal Reserve to start lowering its benchmark interest rates soon because new data shows that inflation is slowing down and shopper confidence is rising. Traders in swaps think that interest rates will be lowered by about 100 basis points by the end of the year. This suggests that policy could be eased significantly, though it might not happen until September.
Things got better for consumers for the first time in five months because inflation was going down and people thought the Fed would cut rates. An important way to measure real inflation, the core personal consumption expenditures (PCE) price index, went up at a slow rate. This supports the idea that inflation is under control.
“This week’s numbers put an end to worries about a recession and inflation,” said David Russell of TradeStation. Goldilocks might be here as Jerome Powell gets ready to turn the page. Recent words by Fed Chair Jerome Powell that now is a good time to think about lowering interest rates have given the market more confidence. Many people think that interest rates will go down as soon as next month.
Even though there were signs of a strong economy, inflation-adjusted consumer spending rose from the previous month. This suggests that even though inflation is decreasing, the economy is still strong. Chris Low at FHN Financial said, “Friday’s report wasn’t a surprise after recent inflation readings that were pretty low.” It looks like the Federal Reserve will be able to ease policy next month based on these numbers.
The July PCE data fits with what people expect, according to Tim McDonough of Key Wealth, which is a 25-basis point rate cut in September. “Now that the Fed has turned its attention from inflation to the job market, all eyes will be on the August jobs report,” he said.
The market is now paying more attention to the job market than to inflation, with the August jobs report getting a lot of attention. A strong report could make the case for lower interest rates stronger, while a weaker-than-expected number could fuel rumours of a bigger cut.
Gary Pzegeo of CIBC Private Wealth US said this about the PCE report: “Today’s PCE report, which shows a slight rise in core personal consumption inflation, shouldn’t change the Fed’s “direction of travel.” But this data doesn’t help the case of those who want the Fed to cut rates more quickly. At this point, the Fed will need to see another month of weak labour figures in order to back up a huge cut.
Interest-rate swaps show that there is a 20% chance of a 50-basis point cut in September. This is slightly less than the 24% chance that existed before the data release. Traders are expecting about 97 basis points of easing for the rest of 2024. This shows that they are cautiously confident.
Bret Kenwell of eToro said, “Last month’s jobs report was a big miss, which made a lot of people worry that the Fed was too late to cut rates.” Another big miss could increase speculation of a 50 basis-point cut versus the current expectation of a 25 basis-point cut.”
Recently, US government bonds have done well. From August 1st to Thursday, they returned 1.5%, and they’re on track to make gains for a fourth month in a row. This rally has extended the year’s gains to almost 3%, as investors increasingly anticipate lower borrowing costs.
Florian Ielpo of Lombard Odier Investment Managers stated, “The markets are now awaiting next week’s job market figures, which should determine whether the Fed opens the rate cut ball with a 50 or 25 basis point cut—the difference between an emergency cut and a normalization cut.”
In the corporate sector, notable developments included Intel Corp. navigating challenging times and exploring strategic options such as splitting its product-design and manufacturing businesses. Dell Technologies Inc. had better-than-expected sales because more AI-related computers were sold. On the other hand, Lululemon Athletica Inc. and Ulta Beauty Inc. both lowered their sales and profit predictions because of tougher competition and rising prices.
Some of the bigger changes in the market were spot gold falling 0.6% to $2,506.89 an ounce and West Texas Intermediate crude oil falling 2.6% to $73.90 a barrel. Bitcoin and Ether both lost 1.7% and 3%, respectively, which shows that the cryptocurrency market has been very volatile lately.
Overall, the markets are closely watching the upcoming economic data, particularly the August jobs report, which will be crucial in shaping the Fed’s monetary policy and guiding investor sentiment. As the economy continues to navigate a delicate balance, the focus remains on ensuring that the growth trajectory supports a soft landing without overheating.
This article provides a comprehensive overview of the recent stock market performance, economic indicators, and corporate news, ensuring that readers are well-informed about the current financial landscape.
