S&P 500 Jumps to New Record High Amid Hopes of Soft Landing

Alexander Garcia
19 Sep, 2024
Miami

Stock market indexes soared a day after the Federal Reserve delivered a larger rate cut, surprising many market watchers. 

Investors returned to add stock positions on Thursday after the Federal Reserve lowered rates for the first time in over four years, cutting down rates from a 23-year high. 

Benchmark indexes jumped more than 2% in the hopes that the Federal Reserve's efforts to engineer a so-called "soft landing" are likely to succeed. 

The Fed appears to be confident that it has tamed inflation, and policymakers pivoted to their other mandate of maximum employment. 

A larger rate cut is a double-edged sword, as lower interest rates create more demand for goods and services but also stoke inflation and wipe out hard-fought gains against rapid price hikes over the last two years. 

Investors, in a delayed reaction to the Fed's jumbo-sized rate cut of 50 basis points, bid up tech stocks, home builders, and small-cap names. 

The Fed cut its fed funds rate to a range between 4.75% and 5.0% from the 5.25% to 5.50%, and the amount of rate cut surprised investors. 

Initial jobless claims for the week ending on September 14 declined 12,000 to 219,000, the U.S. Department of Labor reported on Thursday. 

Initial claims were the lowest since May 18, and continuing claims, which lag by a week, edged lower to 1.829 million. 

 

Existing Home Sales Fell Sharply In August 

Existing home sales, which account for the bulk of home sales, declined 2.5% from the prior month in August to an annual rate of 3.86 million in August, according to the latest data released by the National Association of Realtors. 

August home sales were the lowest since 2010, and median home price increased 3.1% from a year ago to $416,700, the 14th consecutive month of annual price increase and a record for August home prices. 

“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said NAR Chief Economist Lawrence Yun. 

The inventory of unsold existing homes improved by 0.7% from the previous month to 1.35 million at the end of August, or the equivalent of 4.2 months’ supply at the current monthly sales pace.

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 1.6% to 5,708.29, the Nasdaq Composite rose 2.3% to 17,973.09, and the Russell 2000 index advanced 1.4% to 2,238.17. 

The yield on 2-year Treasury notes edged lower to 3.63%, 10-year Treasury notes inched up to 3.76%, and 30-year Treasury bonds inched lower to 4.09%.

WTI crude oil decreased $0.76 to $71.63 a barrel, and natural gas prices edged down 3 cents to $2.25 a thermal unit.

Gold rose by $16.57 to $2,565.78 an ounce, and silver increased by $0.18 to $31.03.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 100.95.

 

U.S. Stock Movers

Home builders jumped after the Federal Reserve lowered rates by 50 basis points in the hopes that lower mortgage rates will spur demand for new homes. 

Lennar Corp. jumped 0.9% to $190.29, NVR Homes gained 1.7% to $9,624.67, KB Home gained 1.9% to $88.31, Toll Brothers added 1.4% to $152.02, PulteGroup inched higher 0.6% to $141.88, and DR Horton added 0.9% to $195.97. 

Chipmakers and artificial intelligence stocks rallied after lower interest rates spurred investors to return to high-growth stocks. 

AMD increased 4.2% to $154.55, Apple gained 3% to $227.27, Alphabet increased 1% to $162.54, Microsoft advanced 1.5% to $437.12, and Nvidia jumped 4.5% to $118.41. 

SLB increased 2.1% to $42.27 after the company announced a partnership with Nvidia to develop AI modes for subsurface exploration and operations and data management. 

Steelcase declined 11% to $12.56 after the office furniture maker reported weaker-than-expected quarterly results. 

Revenue in the second quarter stood at $855.8 million, and the company forecast a third-quarter revenue range between $785 million and $810 million, lower than the previous upper range of $812.1 million. 

Darden Restaurants jumped 7.4% to $170.86, and the company announced weaker-than-expected quarterly results because of the weakness in its fine dining restaurants. 

The parent company of Olive Garden reported revenue in the fiscal first quarter decreased 1% to $2.76 billion, net income rose to $207.2 million from $194.5 million, and diluted earnings per share advanced to $1.74 from $1.59 a year ago. 

Same store sales at Olive Garden declined 2.9%, and the company said it is reviving its Never Ending Past Bowl later this month in the hopes of attracting more customers. 

Despite the weakness in the current quarter, the company reiterated its full-year sales forecast between $11.8 billion and $11.9 billion and earnings per share from continuing operations between $9.40 and $9.60. 

 

UK and Norway Held Rates Steady, Passenger Car Registration Dropped 18% In August 

European stock market indexes advanced, and investors reviewed the latest monetary policy decisions in the UK and Norway. 

Benchmark indexes in London, Paris, and Frankfurt traded higher after the U.S. Federal Reserve cut its main lending rate range by 50 basis points and signaled possible rate cuts in the year. 

The Bank of England held its main financing rate at 5.0%, as widely expected by investors. 

The central bank in the UK held rates steady after lowering rates by 25 basis points for the first time in over four years. 

The Monetary Policy Committee voted 8-1 to keep the bank rate at 5.0%, with one member dissenting to trim the rate by 0.25%. 

In a unanimous vote, the committee voted to lower the purchase of government bonds by £100 billion over the next 12 months to £558 billion. 

The Norges Bank held steady its policy rate at a sixteen-year high of 4.5%, and signaled rates are likely to remain unrevised for the remainder of the year. 

The Norges Bank left its rate unrevised for the sixth consecutive meeting in September. 

 

EU passenger Car Registration Plunged 18% In August 

Passenger car registration in the European Union plunged by 18.3% to 643,637 in August, reversing an increase of 0.2% in the previous month, said the European Automobile Manufacturers' Association on Thursday. 

In four leading markets in the union, car sales declined amid weakness in battery-operated vehicles. 

Passenger car registration in Germany declined 27.8%, in France fell 24.3%, in Italy dropped 13.4%, and in Spain decreased 6.5%. 

Battery electric car registration plunged 43.9% to 92,627 units, with total market share slipping to 14.4% from 21% in the previous year. Sales in Germany fell 68.8% and in France dropped 33.1%. 

Sales of battery-operated electric vehicles declined for the fourth consecutive month in a row, after rising steadily nearly every month last year. 

For the first eight months of 2024, passenger car registration increased 1.4% to 7.2 million units, after sales increased 4.5% in Spain and 3.8% in Italy but stagnated in France and Germany. 

 

Europe Indexes and Yields

The DAX index increased by 1.5% to 18,986.06; the CAC-40 index rose by 2.0% to 7,593.55; and the FTSE 100 index added by 1.3% to 8,363.69. 

The yield on 10-year German bonds edged higher to 2.19%, French bonds inched higher to 2.93%, the UK gilts edged up to 3.84%, and Italian bonds increased to 3.55%.

The euro edged up to $1.11; the British pound inched higher to $1.32; and the U.S. dollar weakened to 84.59 Swiss cents.

Brent crude increased $0.41 to $74.06 a barrel, and the Dutch TTF natural gas fell by €0.78 to €36.37 per MWh. 

 

Europe Stock Movers

Next plc increased as much as 2% before easing to a decline of 0.1% to 10,325.0 pence, and the UK apparel retailer estimated an annual profit of £1 billion. 

Ocado Group jumped 6.6% to 372.15 pence after the online grocery store operator and technology company reported strong fiscal third quarter results. 

The retail joint venture between Ocado and Marks & Spencer saw an increase in revenue of 15.5% to £658 million for the 13 weeks to September 1.

The company said active customer base increased 10.3% to 1.06 million and average weekly orders rose 14.7% to 437,000.

The company said the number of items per order edged up 0.7% to 44, and the average value of the order held steady at £120.97. 

The company revised its sales outlook to "low double-digit percentage growth" from its previous forecast of "mid-high single-digit growth" in sales in the current fiscal year. 

Close Brothers declined 4.9% to 501.70 pence, and the company said it agreed to sell its wealth management unit, Close Brothers Asset Management, to a private equity firm. 

 

Japan Stock Indexes Jumped 2% Following U.S. Rate Cut 

Stock market indexes in Tokyo soared following the jumbo rate cut by the U.S. Federal Reserve, and the yen weakened.

The Nikkei 225 stock average and the Topix index jumped nearly 2.5% after the latest Federal Reserve policy decision. 

The Federal Reserve lowered its key lending rate range by 50 basis points to between 4.75% and 5.0%, its first rate cut since March 20220.

In addition, the central bank also signaled additional rate cuts totaling as much as 50 basis points over the next two meetings this year. 

But Fed Chair Jerome Powell stressed that this is not the beginning of a series of 50 basis point rate cuts. 

While the larger rate cut was welcomed by investors, the move also raised concerns about the health of the U.S. economy and labor market conditions. 

The super-sized rate cut lifted markets in Asia, and the Japanese yen weakened to 142.77 and the Chinese yuan gained 0.3% to 7.07 against the U.S. dollar. 

The euro and the British pound gained 0.1% in trading to $1.12 and $1.32 following the Fed's move. 

The Nikkei 225 stock average jumped as much as 2%, the CSI 300 index added 0.8%, the Hang Seng index advanced 1.6%, and the ASX 200 index inched higher by 0.3%. 

Export-driven stocks were among the leading gainers in Tokyo's trading; investors shifted their attention to the Bank of Japan's rate decisions on Friday. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average increased 2.4% to 37,260.42, and the Topix index added 2.3% to 2,624.53. 

Toyota Motor jumped 5.4% to ¥2,618.50, Honda Motor advanced 4.1% to ¥1,555.0, and Nissan Motor edged higher 3.8% to ¥404.40. 

Among major exporters, Sony Group gained 2.4% to ¥13,170.0, Canon advanced 1.8% to ¥4,753.0, and Panasonic increased 3.3% to ¥1,251.0. 

Seven & I Holdings edged up 0.7% to ¥2,166.0, Isetan Mitsukoshi increased 2.1% to ¥2,169.0, Fast Retailing advanced 2.8% to ¥46,070.0, and Aeon Corp. gained 1% to ¥4,057.0. 

Trading companies, also known as Sogo Shosha, also participated in Thursday's market rally. 

Mitsui & Co. Ltd. jumped 3.6% to ¥2,933.0, Marubeni Corp. advanced 2.7% to ¥2,273.0, Mitsubishi Corp. increased 2.8% to ¥2,878.50, and Itochu shot up 4.4% to ¥7,655.0. 

 

HSBC and BoC Pass On Smaller Rate Cut After HKMA Lowers Base Rate 

Stocks in Hong Kong rebounded after investors returned from a holiday, and the Hong Kong Monetary Authority lowered its base rate, reflecting the move by the U.S. Federal Reserve. 

The Hang Seng index jumped nearly 2% and the mainland-focused CSI 300 index advanced nearly 1%. 

The U.S. Federal Reserve lowered its key lending rate for the first time since March, with an aggressive cut of 50 basis points to between 4.75% and 5.0%. 

The Fed's latest move indicated that policymakers feel confident about the inflation trajectory towards the target rate of 2%. 

However, most of the decline in inflation in 2024 reflects the weakening of crude oil prices and imported goods from Asia, which is struggling with manufacturing overcapacity. 

The Hong Kong Monetary Authority lowered its base rate by 50 basis points to 5.25%, following the Fed's move to maintain the Hong Kong dollar's parity with the U.S. dollar. 

Still, market indexes in China and Hong Kong are down in September amid a weak earnings growth outlook and the protracted property market crisis that shows no end in sight. 

Moreover, the latest batch of economic data for August, from retail sales to fixed investment and industrial output, missed expectations set by economists. 

 

China Stock Movers 

The Hang Seng index soared 1.8% to 17,978.83, and the mainland-focused CSI 300 index gained 0.6% to 3,196.35. 

Property stocks advanced for the second day in a row after the HKMA lowered its lending rate by half a point. 

China Resources Land jumped 9.3% to HK $21.10, China Vanke gained 8.2% to HK $4.24, Longfor Group added 7.2% to HK $8.55, and Henderson Land added 2.2% to HK $24.85. 

Tech stocks participated in the market rally in Hong Kong following the easing of interest rates because the lower rate increases the current value of the future earnings stream. 

Alibaba Group added 3.4% to HK $85.65, Tencent Holdings advanced 2.4% to HK $389.0, and the Meituan jumped 3.7% to HK $133.30. 

Banks were in focus after HSBC Bank and Bank of China lowered their prime lending rates by 25 basis points, leading the first decline in rates in Hong Kong since November 2019. 

HSBC lowered its prime lending rate to 5.625% and lowered its savings rate for deposits that exceed HK $5,000 by 25 basis points to 0.625%. 

Bank of China's Hong Kong operations also lowered its prime lending and savings rate by a similar amount. 

BYD rose 0.5% to HK $244.0, Li Auto increased 4.3% to HK $82.30, and Xpeng edged up 0.4% to HK $35.65.