The S&P 500 is Up in a Major Reversal as Fed-cut Bets Are Mounting

Stocks ended the week on a high note as recent economic data bolstered expectations that the Federal Reserve will cut rates in September.

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On Friday, approximately 90% of S&P 500 shares rose, helping the index reclaim the 5,600 mark after a previous session dip. While technology stocks rebounded, smaller firms continued to outperform larger megacap companies. However, banks faced challenges at the start of the US earnings season, with results from Wells Fargo & Co., JPMorgan Chase & Co., and Citigroup Inc. failing to boost industry momentum.

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Equity traders largely ignored a weak consumer sentiment reading, focusing instead on the likelihood of rate cuts, which could ultimately benefit Corporate America. Data also revealed that producer prices rose slightly more than expected, but categories used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price index, were not as concerning.

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Mark Haefele of UBS Global Wealth Management stated, “We continue to expect the Fed to join the global rate-cutting cycle in September, with 50 basis points of easing this year.”

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The S&P 500 extended its gains for the week. The Nasdaq 100 increased by 1%, and the Dow Jones Industrial Average climbed back above 40,000. Nvidia Corp. led the gains in big tech, while Tesla Inc. rallied a day after experiencing an over 8% decline. Additionally, the Federal Communications Commission announced it was investigating a significant hack of AT&T Inc. customer data.

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Treasury 10-year yields dropped by one basis point to 4.20%. The British pound is trading near its strongest level against the dollar in a year and its highest against the euro in almost two years.

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This positive momentum in the stock market is driven by the anticipation of rate cuts by the Federal Reserve. The majority of shares in the S&P 500 rose on Friday, recovering from a previous decline. Technology stocks showed resilience, with smaller companies outperforming larger ones. Despite a lackluster start to the US earnings season for banks, traders remained optimistic about the overall market.

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The weak consumer sentiment report did not deter traders, who are focusing on the potential benefits of rate cuts for Corporate America. While producer prices increased slightly more than expected, the categories relevant to the Fed’s preferred inflation measure were not as worrisome. This has led to speculation that the Fed will join the global trend of rate cuts in September, with a potential 50 basis points of easing expected this year.

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The S&P 500 continued its upward trajectory for the week, with the Nasdaq 100 and Dow Jones Industrial Average also posting gains. Notably, Nvidia Corp. saw significant gains among big tech stocks, and Tesla Inc. rebounded strongly after a significant decline. The market was also affected by news of the Federal Communications Commission investigating a major hack involving AT&T Inc. customer data.

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In the bond market, Treasury 10-year yields fell slightly, reflecting the broader optimism about potential rate cuts. The British pound's strength against the dollar and the euro also highlighted the positive sentiment in the currency markets.

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Overall, the stock market's positive end to the week reflects a growing belief in imminent rate cuts by the Federal Reserve. This expectation has driven gains across various sectors, with technology and smaller firms leading the way. Despite some challenges in the banking sector and mixed economic data, traders remain focused on the potential benefits of lower borrowing costs for Corporate America. The anticipation of rate cuts and a favorable inflation outlook are key factors supporting the current market optimism.

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