Rate-cut Hopes Fueled Optimism Rules Wall Street

Barry Adams
20 Aug, 2024
New York City

Stocks on Wall Street were little changed, and market indexes are likely to retain upward momentum amid improving global market sentiment. 

The S&P 500 index and the Nasdaq Composite index edged slightly higher as fears of an economic slowdown receded and extended their gains for the eighth session in a row. 

Earlier in the month, benchmark indexes plunged as much as 10% amid worries of an economic slowdown after non-farm payrolls and weekly jobless claims were sharply lower than estimated. 

However, those worries were set aside in the following two weeks after retail sales and jobless claims were ahead of market expectations, and softer inflation reports also confirmed that the current economic expansion with low inflation is intact. 

Investors bid up stocks in the hopes that the Federal Reserve is ready to start its rate-cutting cycle after the end of the policy meeting on September 19. 

However, those high hopes of a rate cut may face hurdles, and the Fed's policymakers may wait a little longer before inflation is on a downward trajectory towards the 2% level. 

Despite eleven rate hikes over 2022 and 2023, prices are still rising from a higher base, and inflation has stalled at 3%.

Moreover, the Fed is fighting for its credibility after letting the first rise in inflation be transitory and then reversing its course after inflation soared to close to 9%. 

In addition, the Federal Reserve has no tools to bring down high prices that have seeped deep into the economy. 

Over the last three years, home prices have jumped more than 50%, vehicle prices are up at least 30%, food prices have risen at least 50%, and most service costs have jumped more than 40%. 

The Fed's repeated signaling of its inflation target rate of 2% may not be achieved for months to come because prices of services are still rising and wages are growing between 4% and 5%, inconsistent with the Fed's goals. 

Inflation may hover near 3%, but most consumers are feeling the shock of the higher cost of living, and most families are struggling to pay bills. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.01% to 5,608.62, the Nasdaq Composite rose 0.06% to 17,887.95, and the Russell 2000 index advanced 1.2% to 2,167.50. 

The yield on 2-year Treasury notes edged lower to 4.05%, 10-year Treasury notes decreased to 3.86%, and 30-year Treasury bonds inched higher to 4.12%.

WTI crude oil decreased $0.12 to $73.77 a barrel, and natural gas prices edged up 4 cents to $2.27 a thermal unit.

Gold advanced by $22.68 to $2,525.67 an ounce, and silver increased by $0.39 to $29.80.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 101.79.

 

U.S. Stock Movers

Palo Alto Networks soared 1.9% to $350.0, and the cyber security company reported better-than-expected quarterly results and raised its stock repurchase size by $500 million. 

The company guided fiscal first quarter earnings per share between $1.47 and $1.49 and revenue between $2.1 billion and $2.13 billion. 

Lowe's Companies declined 1.1% to $240.50, and the home improvement retailer reported mixed quarterly results. 

In the fiscal second quarter, the specialty retailer earned $4.10 a share, beating the estimate of as low as $3.99, and revenue was $23.59 billion, slightly lower than the estimate of $23.85 billion.

The company also lowered its annual outlook, citing softening demand growth after three years of strong growth. 

Paramount Global Class A decreased 1.6% to $22.90 after reports that Edgar Bronfman Jr. proposed to acquire National Amusement, which owns a controlling stake in the media company. 

The new proposal comes a month after Paramount and Skydance Media and their group of investors agreed to buy the company. 

Hawaiian Holdings soared 11.5% to $17.70 and Alaska Air Group gained 1.4% to $35.55 after the U.S. Justice Department approved the $1.9 billion merger of two airlines. 

The two companies are now seeking merger approval from the U.S. Transportation Department.