FED signals rate cut, sparks market euphoria and stock surge
Federal Reserve Chairman Jerome Powell confirmed that a rate cut in the US is approaching. His words sparked euphoria in the stock market. Friday's session on Wall Street ended with strong gains in major indexes, and the yields on US Treasury bonds fell.
Dow Jones Industrial Average rose 1.14% at the close to 41,175.08 points. S&P 500 rose 1.15% by the end of the day to 5,634.61 points. Nasdaq Composite climbed 1.47% to 17,877.79 points. The Russell 2000 index of medium-cap companies gained 3.08% to 2,216.28 points. The VIX volatility index dropped 10.09% to 15.78 points.
For the whole week, the Dow and Nasdaq gained about 1.3%, and the S&P 500 rose 1.4%.
On Friday, stocks rose, and bond yields fell after Fed Chairman Jerome Powell reinforced expectations that the central bank would cut interest rates in September.
The time has come to adjust monetary policy. The road ahead is clear, and the timing and pace of interest rate cuts will depend on incoming data, evolving outlooks, and the balance of risks - said the Fed Chairman.
- We will do everything we can to support a strong labour market as we continue to make progress towards price stability. With the appropriate reduction in the restrictiveness of monetary policy, there are good reasons to believe that the economy will return to 2% inflation while maintaining a strong labour market. The current level of interest rates gives us enough room to respond to any risks we may face, including the risk of undesirable further weakening of labour market conditions - he added.
Kansas City Fed President waiting for data
New home sales in the US in July reached 739,000 on an annualised basis, compared to the expected 623,000. The previous month recorded sales of 668,000 after an adjustment from 617,000.
On a month-to-month basis, sales rose 10.6% compared to a 0.3% increase month-to-month the previous month, after a revision from -0.6%. Analysts had expected +1.0%.
Federal fund futures contracts in the US indicate the likelihood of interest rate cuts at the three remaining Fed meetings this year, pointing to one 0.50 percentage point cut at one of the meetings.
Kansas City Fed President Jeffrey Schmid said he wants to see more data before endorsing cuts. His counterpart from Boston, Susan Collins, said that a gradual, methodical pace with regard to interest rate cuts is likely to be appropriate.
Companies recovering losses. Stocks up
Shares of semiconductor manufacturers such as Nvidia, Broadcom, and Qualcomm rose by several percent, recovering losses from declines in the previous session. Tesla gained about 4% at the end of the day.
Shares of pet product retailer Chewy surged after Piper Sandler upgraded the company’s stock rating to “overweight” from “neutral”. Shares of Peloton fell after a 35% rise during the previous session. JPMorgan downgraded the company’s stock rating to “neutral” from “overweight”. Warby Parker gained after JMP Securities upgraded the company’s stock rating to “overweight” from “equal weight”.
Workday shares climbed over 10% after the human capital management software provider exceeded market expectations for second-quarter revenue and announced a £800 million share repurchase plan.
Ross Stores shares rose several percent after the retailer raised its profit forecast for the 2024 fiscal year.
On the oil market, August WTI contracts rose 2.56% to £59. Domestic futures increased 2.32% to £63.
