Rate-cut Expectations Support Upward Move In Stocks On Wall Street

Barry Adams
26 Aug, 2024
New York City

Stocks opened higher in Monday's trading, and benchmark indexes approached record highs after Fed Chair Powell signaled a possible rate cut in the future. 

U.S. stocks escalated their advances in Friday's trading after comments from Fed Chair Powell suggested a possible rate cut in the future. 

Fed Chair Jerome Powell suggested that a policy adjustment is needed and a possible rate cut is likely; however, Powell fell short of indicating the amount and timing of future rate cuts. 

Investors were quick to bid up stocks following Powell's comments and interpreted that the central bank is likely to begin interest rate cuts as early as September 19, after the next policy meeting. 

Despite the market's enthusiasm for possible imminent rate cuts, inflation is still well anchored in the economy and has stalled near the 3% level for several months, well above the Fed's target of 2%.

Any premature rate cut would only stoke inflationary forces to rebound later in the year and also dent the Federal Reserve's credibility. 

The Federal Reserve's talk of declaring victory sounds hollow to most Americans when prices are still rising from a higher base.

Moreover, policymakers have no plans or intention of bringing down the sky-high home prices and cost of living experienced by most families. 

While the Federal Reserve takes credit for bringing inflation down from near 9%, it was the Federal Reserve's reckless printing of money during the COVID-19 pandemic that drove inflation to a four-decade high in the first place. 

The Federal Reserve has lifted rates 11 times over 2022 and 2023, yet inflation is stalled at 3% and shows no sign of easing, and home prices, wages, food prices, and the cost of various personal services are still rising faster than 4%. 

In the week ahead, investors are looking forward to the release of U.S. durable goods orders, metropolitan home prices to continue to rise at an elevated pace of above 5%, and a second estimate of the second quarter GDP to confirm the preliminary estimate.

Investors are also looking forward to the release of personal income, outlays, and the PCE Price Index, the alternative measure of inflation.

Durable goods orders jumped 9.9% from the previous month in July, reversing the downwardly revised 6.6% decrease in the previous month, the Census Bureau reported Monday. 

Orders rose 10.4% after excluding defense orders and excluding transportation orders by 0.2%. 

The latest data contrasted with the prevailing narrative that the manufacturing sector is losing steam, and transportation orders soared 34.8% from the previous month. 

However, from a year ago, new orders declined 1.4% in July, orders excluding transportation increased 1.4%, and excluding defense fell 1.2%. 

Nondefense capital goods orders, excluding aircraft orders, which is generally seen as a barometer for business spending, decreased 0.1% from the previous month and edged up 0.5% from a year ago. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.1% to 5,640.10, the Nasdaq Composite advanced 0.3% to 17,819.22, and the Russell 2000 index rose 0.7% to 2,234.90. 

The yield on 2-year Treasury notes edged lower to 3.92%, 10-year Treasury notes decreased to 3.81%, and 30-year Treasury bonds inched higher to 4.10%.

WTI crude oil increased $2.07 to $76.87 a barrel, and natural gas prices edged down 6 cents to $1.96 a thermal unit.

Gold fell by $16.56 to $2,525.47 an ounce, and silver increased by $0.31 to $30.13.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 100.80.

 

U.S. Stock Movers

Boeing declined 0.7% to $173.69, and NASA said it plans to use SpaceX to bring back two astronauts from the International Space Station. 

Earlier, Boeing had repeatedly said its aircraft were safe for the return journey; however, NASA did not agree with Boeing's assessment. 

Nvidia Corp. jumped 0.3% to $129.78, and the advanced chip designer is scheduled to release its quarterly earnings on Wednesday as investors are looking for signs of capital spending by leading mega-cap tech companies. 

Uber Technologies declined 1.7% to $72.97, and the online ride-hailing platform was fined $324 million by Dutch regulators for transferring driver data to the U.S. 

Nordstrom was nearly unchanged at $21.75 ahead of the luxury retailer's quarterly results on Tuesday after the close of regular trading hours. 

The retailer reported revenue increased 4.8% from a year ago to $3.34 billion in the previous quarter, and analysts are estimating the company to report at least $3.89 billion in revenue and adjusted earnings per share of 73 cents in its latest quarter.