As traders eagerly anticipate the upcoming Federal Reserve meeting, stock performance is showing a slight retreat from earlier highs. Wall Street is currently divided on the potential scale of rate cuts, creating a complex backdrop for market actions.
Despite this cautious stance, the S&P 500 index achieved its longest winning streak in a month, marking a seventh consecutive day of gains. The index briefly exceeded its previous all-time high. Economically sensitive sectors once again outperformed technology stocks, with small-cap stocks reflected by the Russell 2000 index making significant advances. Meanwhile, Treasury yields have seen a modest increase, particularly in shorter maturities.
Data released for August revealed an unexpected rise in US retail sales, supported by online shopping that masked the mixed performance of traditional retailers. The total value of retail transactions, not adjusted for inflation, climbed by 0.1%, following a revised gain of 1.1% in July. Excluding automotive sales and gas stations, retail purchases increased for the fourth consecutive month.
Commenting on this development, David Russell from TradeStation noted, “This is another Goldilocks scenario. Retail sales are robust enough to prevent a recession but not so strong that they might hinder potential rate cuts.” However, Bret Kenwell from eToro cautioned that concerns remain regarding the labor market: “While consumer performance has surpassed many economists’ projections, it does not necessarily indicate a thriving consumer base.”
Amid these outcomes, key indices such as the S&P 500 and Nasdaq 100 rose 0.2% each, while the Dow Jones Industrial Average saw a 0.1% increase. Notable corporate movements included Microsoft announcing a $60 billion share repurchase program alongside an increase in dividends, and Intel’s plans for developing a specialized AI chip for Amazon.
The yield on 10-year Treasury bonds edged up by three basis points to 3.64%. Market bets are indicating about a 55% chance of a 50-basis-point rate cut decision from Federal Reserve officials. A complete quarter-point reduction is seen as already priced in.
Market forecasts are shifting towards expectations of a more pronounced rate cut, driven in part by the unexpectedly strong retail sales data, although the report’s underlying details suggested a more nuanced outlook. Chris Larkin of E*Trade noted that while the improved sales figures support market conditions, they are unlikely to dictate the Fed’s immediate decisions.
Market analysts, including Matt Maley from Miller Tabak, suggest a binary outcome from the Federal Reserve: either a substantial cut of 50 basis points or a modest 25 basis-point reduction paired with signals of future aggressiveness. However, the interpretation of strong market reactions following a rate adjustment remains uncertain, as the market approaches potentially overbought conditions.
As the US economy seems poised for a soft landing, it’s apparent that fears of a recession that prompted a market downturn earlier this month may have been overstated. UBS Global Wealth Management’s Solita Marcelli expressed her optimism regarding equity gains and highlighted that while rate cuts typically benefit equities, they particularly enhance the appeal of growth stocks in a low-rate environment.
Looking ahead, important economic data releases are scheduled, including Eurozone inflation rates, and both the Federal Reserve and Bank of England’s rate decisions. Other notable events include the US Conference Board’s leading index release and initial jobless claims on Thursday, coupled with FedEx’s earnings report that same day.
In the current market snapshot, key movements include:
- The S&P 500 continues its upward trend, increasing by 0.2%.
- The Russell 2000 index, indicative of small-cap stocks, gained 1.5%.
- On the currency front, the Bloomberg Dollar Spot Index rose by 0.2%, with the euro, British pound, and Japanese yen experiencing slight declines against the dollar.
- Bitcoin showed resilience, climbing 5.4% to reach $60,759.51, while Ether appreciated by 4.3% to $2,371.60.
- Commodity prices reflected fluctuating trends, with West Texas Intermediate crude rising 2.1% to $71.56 per barrel, while spot gold saw a minor decrease.
This analysis captures the intricate dynamics affecting the financial markets as traders decode the signals leading to pivotal policy decisions by the Federal Reserve and assess their implications in an evolving economic landscape.