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US stock markets posted significant gains on Friday as Federal Reserve Chairman Jerome Powell reiterated market expectations for a possible rate cut in September.
During a highly anticipated speech at the Jackson Hole Economic Symposium, Powell said now is the time to cut the federal funds target. He noted that concerns about rising inflation have eased, allowing the Fed to be more flexible in its monetary policy.
"We have not seen a deterioration in the labor market, and we do not want to see one," Powell said in a speech that many analysts took as a clear signal to cut rates at the Fed's upcoming meeting. If the decision is made, it would be the first rate cut in four years.
The market reacted to these statements immediately. Detrick, the director of one of the analytical companies, expressed the opinion that the September meeting will open a series of further rate cuts that could continue until the end of the year. According to him, the Fed has made it clear that it is moving to an active phase of monetary easing.
After the publication of Powell's statement, all three major US stock indexes experienced a significant rise. Large-cap companies such as Nvidia, Apple and Tesla stood out in particular, with their shares showing the greatest growth.
Small-caps and regional banks did not stand aside either, with indices rising by 3.2% and 4.9%, respectively. As Detrick noted, the financial sector has reached historical highs, and this rise confirms that the economy does not have serious threats on the horizon that could weaken the positions of regional banks and financial companies.
At the end of the week, all three major US indices recorded positive dynamics, supported by the best weekly gain this year, demonstrated last week.
Ahead of the September meeting of the US Federal Reserve, where the key interest rate decision will be made, analysts are expecting the receipt of a number of important economic data.
The key ones will be the revised figures for the gross domestic product (GDP) for the second quarter from the Commerce Department and the report on personal consumption expenditures (PCE), which contains the PCE price index, the Fed's main indicator of inflation.
All 11 key sectors of the S&P 500 index ended the trading session in positive territory. The real estate sector stood out in particular, showing the most significant gain, rising by 2.0%. This growth was provided by confident investments and positive market sentiment, which supported the overall upward trend.
HR software company Workday (WDAY.O) beat market expectations for quarterly revenue. Moreover, the company announced its intention to buy back its own shares for $1 billion. The news caused a real boom in the market: Workday shares jumped by 12.5%, becoming the leader in growth on the Nasdaq exchange.
Discount retailer Ross Stores (ROST.O) also showed positive dynamics, rising by 1.8%. This happened after the company raised its profit forecast for the 2024 fiscal year, which strengthened investor confidence.
At the same time, shares of Intuit (INTU.O), known for its Turbo Tax product, fell by 6.8% after publishing a quarterly report that did not meet expectations. The disappointing results caused a sharp decline in investor interest in the company.
On the New York Stock Exchange (NYSE), the number of advancing stocks significantly exceeded the number of declining ones — the ratio was 8.08 to 1. On the Nasdaq, the situation was also in favor of advancing stocks, where there were 3.68 advancing ones for every declining one. This trend confirms investors' confidence in the stability of the economy and the upcoming decisions of the Federal Reserve.
The American stock market is once again showing confident growth, confirming the positive sentiment of investors. The S&P 500 index recorded 81 new 52-week highs, without recording a single new low. At the same time, the Nasdaq Composite noted 149 new highs and 51 new lows, which underlines the high activity in the market.
Trading activity on U.S. exchanges showed good results, although the total volume of transactions amounted to 10.57 billion shares, slightly below the average of the last 20 trading days (11.88 billion). Despite this, the key indices continued to rise.
The Dow Jones Industrial Average rose by 1.14%, reaching 41,175 points. The S&P 500 added 1.15% and stopped at 5,634, very close to its all-time high. The Nasdaq Composite showed the biggest gain among the major indices, increasing by 1.47% and reaching 17,877 points.
European exchanges also saw gains. The broader STOXX 600 index rose 0.5% to hit its highest in three weeks. The gain also put the index on track to end a third straight week of gains.
In Asia, the picture was mixed, with stocks outside Japan down slightly, 0.1%, while Japan's Nikkei rose 0.4%. The gains were supported by positive investor reactions to inflation data and comments from Bank of Japan Governor Kazuo Ueda, who has signaled a willingness to raise interest rates if economic data and inflation are in line with expectations.
The impact of recent events on the global economy was reflected in the rise in the MSCI World Index, which rose about 1.1%. Despite the recent turmoil in early August, the index has risen above its all-time peak reached in mid-July, signaling a recovery in global markets and investor confidence in the stability of the global economy.
Following Fed Chairman Jerome Powell's speech, traders have increased their expectations for a rate cut in September. Fed funds futures now offer a 37% chance of a 50 basis point cut, up from 25% the day before. A total of 106 basis points of rate cuts are expected by year-end.
Jerome Powell stressed in his speech that the Fed's policy direction is clear, but the timing and speed of rate cuts will be determined by economic data and changing risks. These statements were an important signal for the market, prompting investors to revise their forecasts.
U.S. Treasury yields fell amid growing expectations for a rate cut. The 10-year yield fell 5.9 basis points to 3.803%, while the 2-year yield, which is more sensitive to changes in interest rate expectations, fell 9.7 basis points to 3.9132%. Amid these changes, German bunds remained steady, yielding at 2.226%.
There was also significant volatility in currency markets. The US dollar weakened, while sterling strengthened, reaching a more than two-year high. The euro also showed gains, rising to $1.1189, its highest in a year.
The Japanese yen also strengthened, as the dollar fell 1.36% to 144.27 and comments from Bank of Japan Governor Kazuo Ueda indicated that he was prepared to raise rates if economic conditions were as expected. However, data released in Japan earlier showed that core inflation accelerated for a third month in a row, but the slowdown in demand-driven price growth does not yet indicate the need for an immediate change in interest rate policy.
The currency market is always based on relative expectations, and the prospect that the Federal Reserve will soon begin cutting rates along with other major global banks has led to a weakening of the dollar, said Uto Shinohara, managing director and chief investment strategist at Mesirow in Chicago. According to him, the market is already pricing in future changes in Fed policy, which reduces the attractiveness of the dollar against other currencies.
Oil prices have jumped sharply by more than 2%, recouping earlier losses associated with a rise in U.S. crude inventories and a decrease in China's oil demand forecasts. This recovery demonstrates the volatility of the oil market, where everything from inventory data to demand expectations can cause significant changes in prices.
Gold continues to strengthen its position, showing a gain of about 1.1%, reaching a price of $2,510 per ounce. This value is close to the record high, which was set just a few days earlier on Tuesday at $2,513 per ounce. Investors continue to invest in gold, seeing it as a safe haven asset in the face of economic uncertainty.
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