Stocks Up as September Fed Cut Seen as ‘Done Deal’: Markets Wrap
(Bloomberg) — Stocks climbed after dovish Federal Reserve minutes and a big downward revision of US payrolls reinforced bets policymakers will cut interest rates in September.
Almost every major group in the S&P 500 advanced, with the benchmark gauge extending its August rally. Fewer than 10 billion shares changed hands on US exchanges — the slowest trading in six weeks. Shorter-term Treasuries outperformed, with two-year yields slumping almost 10 basis points before paring the move. Traders are once again pricing in more than 1 percentage point worth of easing by the end of 2024, starting next month.
In the run-up to Jerome Powell’s speech in Jackson Hole on Friday, Wall Street traders scoured minutes from the latest Fed policy meeting. Several officials acknowledged there was a plausible case for cutting rates at their July gathering before the central bank voted unanimously to keep them steady.
“The Fed minutes removed all doubt about a September rate cut,” said Jamie Cox at Harris Financial Group. “The Fed’s communication strategy is to make its meetings less of a market moving event, and they are following the script to the letter.”
To Bret Kenwell at eToro, with a “vast majority” of Fed members viewing a September rate cut as appropriate before the disappointing monthly jobs report, it seems all but certain that the Fed will ease next month.
“The question isn’t whether the Fed will cut rates in September, but rather, how much will the Fed cut?” he said. “The market is currently pricing in greater odds of a 25 basis-point cut rather than a 50 basis-point cut, which seems like the more likely outcome at this point, provided the August jobs report isn’t a drastic disappointment.”
The S&P 500 rose to around 5,620. Target Corp. climbed 10% after ending a string of sales declines in the second quarter, citing improved discretionary spending. Macy’s Inc. sank 13% on a bearish outlook.
Treasury 10-year yields fell one basis point to 3.79%. Oil slumped as trend-following algorithmic sellers overlooked a bullish US stockpile report.
The Jackson Hole economic symposium kicks off Thursday — with Fed Chair Powell expected to speak on Friday morning. And the S&P 500 is on pace to enter the event with the second strongest year-to-date performance since the year 2000, according to data compiled by Bespoke Investment Group.
While performance leading up to Jackson Hole has been positive in 2024, the index has risen only a third of the time during the symposium across these prior instances with an average decline of 1.37% over the few days it takes place, Bespoke said. The index has also averaged declines the next day, week, and through the next Fed meeting. That’s roughly a three-week period after the last day of the symposium.
With the Fed poised to cut rates from restrictive levels and still strong economic and earnings fundamentals, the environment remains supportive for stocks, according to Solita Marcelli at UBS Global Wealth Management. She believes quality growth remains well placed to outperform.
US job growth was probably far less robust in the year through March than previously reported, keeping pressure on the Fed to cut interest rates next month.
The number of workers on payrolls will likely be revised down by 818,000 for the 12 months through March — or around 68,000 less each month — according to the Bureau of Labor Statistics’ preliminary benchmark revision. It was the largest downward revision since 2009.
“The main message from the revisions in my mind is reinforce just how ‘silly’ it is to let the next jobs number be the determinant in whether to go 25 or 50 in September,” said Neil Dutta at Renaissance Macro Research. “What this revision data imply is that whatever the next jobs number is going to be, it’s probably lower in reality.”
Krishna Guha at Evercore says the big payroll revisions will reinforce the Fed’s assessment that the labor market has been softening under restrictive policy and that it will need to recalibrate rates in a timely manner to prevent this from extending further than desired.
All this favors a relatively “low bar” for 50 basis-point rate cuts. The base case remains a string of 25 basis-point moves.
At Strategas, Don Rissmiller says the case for lower policy rates got stronger. The Fed will need to validate this rate cut cycle – which likely means multiple cuts, he noted, pointing to Powell’s speech on Friday at Jackson Hole.
To Jennifer McKeown at Capital Economics, central bankers are unlikely to offer much forward guidance at the Jackson Hole symposium, preferring to stress their “data dependence.”
“Since most economies are expanding, inflation is easing back to target and financial markets have stabilized after the recession scare a few weeks ago, there is less pressure for them to steer markets than there has been around past events,” she noted. “But they risk keeping rates too high for too long.”
Corporate Highlights:
- Walt Disney Co. named James Gorman, former chief executive officer of Morgan Stanley, to lead the committee searching for a successor to CEO Bob Iger.
- Zoom Video Communications Inc. gave a sales forecast for the current quarter that beat analysts’ estimates as the company expands its suite of products.
- Snowflake Inc. gave a sales outlook that failed to ease investor fears that the company is falling behind in the market for artificial intelligence software tools.
- Apple Inc.’s head of the App Store is leaving as part of a reorganization of the lucrative division, which has drawn regulatory scrutiny over concerns it wields too much power in the mobile software market.
- Ford Motor Co. is recalibrating its electrification strategy yet again, canceling plans for a fully electric sport utility vehicle in a shift that may cost the carmaker around $1.9 billion.
- Walmart Inc. raised about $3.6 billion by selling its stake in Chinese e-commerce firm JD.com Inc., winding down an eight-year partnership that appears to be paying diminishing returns amid a challenging landscape for Chinese tech giants.
Key events this week:
- Eurozone HCOB PMI, consumer confidence, Thursday
- ECB publishes account of July rate decision, Thursday
- US initial jobless claims, existing home sales, S&P Global PMI, Thursday
- Japan CPI, Friday
- BOJ’s Kazuo Ueda to attend special session at Japan’s parliament to discuss July hike, Friday
- US new home sales, Friday
- Jerome Powell speaks in Jackson Hole, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 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%
- The MSCI World Index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- 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
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.79%
- Germany’s 10-year yield declined two basis points to 2.19%
- Britain’s 10-year yield declined two basis points to 3.89%
Commodities
- West Texas Intermediate crude fell 1.7% to $71.94 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Lu Wang.
©2024 Bloomberg L.P.