(Bloomberg) — The Federal Reserve’s latest meeting minutes and a big downward revision to U.S. jobs data strengthened expectations that the central bank will cut interest rates in September, sending stocks higher and bond yields lower.
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The S&P 500 is near an all-time high. Treasuries are broadly higher, led by shorter-dated notes. Swaps are pricing in about 100 basis points of easing in 2024. Contract implied rates indicate traders are expecting a quarter-point cut next month, with about a 20% chance of a half-point cut.
Traders are scouring the minutes of the latest Federal Reserve policy meeting ahead of Chairman Jerome Powell’s speech in Jackson Hole on Friday. Several Fed officials acknowledged there was a reasonable basis for cutting interest rates at their July meeting before the central bank’s policy committee voted unanimously to keep rates unchanged.
“The Fed minutes removed any doubt about a September rate cut,” said Jamie Cox of Harris Financial Group. “The Fed’s communications strategy is not to turn the meeting into a market-moving event, and they’re sticking closely to the script.”
According to eToro’s Brett Kenwell, a “vast majority” of Fed members believe a September rate cut would be appropriate following the disappointing monthly jobs report, making it almost certain the Fed will cut rates next month.
“The question is not whether the Fed will cut rates in September, but by how much,” he said. “The market currently sees a 25 basis point cut as more likely than a 50 basis point cut, but barring a major disappointment in August’s jobs report, a 50 basis point cut seems more likely at this point.”
The S&P 500 was hovering around 5,615. Target Corp. rose 11% after ending a series of second-quarter sales declines citing improving discretionary spending. Macy’s Inc. lowered its sales outlook for the rest of the year. The yield on the 10-year Treasury note fell 3 basis points to 3.78%.
The Jackson Hole Economic Symposium kicks off on Thursday with Fed Chairman Jerome Powell scheduled to speak Friday morning, and the S&P 500 is on track to come into the event after its second-strongest performance since 2000, according to data compiled by Bespoke Investment Group.
Despite the strong performance this year leading up to the Jackson Hole meeting, Bespoke said that in past symposiums, the index has only risen during the symposium in one-third of cases and has fallen an average of 1.37% over the days surrounding the symposium. The index has fallen, on average, the following day, the following week and up until the next Federal Reserve meeting.
That’s about three weeks after the final day in Jackson Hole.
According to Solita Marcelli of UBS Global Wealth Management, the environment remains favorable for the stock market, with the Fed poised to move to cut interest rates, economic and corporate earnings fundamentals remaining strong, and the Fed poised to move to cut interest rates.
“Our base case remains with S&P 500 price targets of 5,900 and 6,200 for the end of the year and June 2025, respectively,” she noted.
Marcelli believes quality growth remains well-positioned to perform well. Companies with competitive advantages and structural drivers should be well-positioned to continue to grow and reinvest earnings, he noted.
Annual revisions to job growth rates don’t usually affect trading, but this one drew attention given recent concerns that the labor market has cooled too much amid high interest rates. Payrolls for the 12 months to March are expected to be revised down by 818,000, the biggest downward revision since 2009.
“The main message I see from this revision is a reminder of just how foolish it is to rely on the next jobs report as a proxy for whether September’s payroll number is 25 or 50,” said Neil Datta of Renaissance Macro Research. “What this revised data suggests is that whatever the next jobs number is, it’s probably actually lower than that.”
Evercore’s Krishna Guha said a big revision in the employment data would support the Fed’s assessment that the labor market is softening under tight policy and that it will need to recalibrate interest rates in a timely manner to prevent this situation from worsening undesirably.
All of this supports a relatively low “hurdle” for a 50 basis point cut. The base case remains a series of 25 basis point cuts.
Don Rissmiller of Strategas said the case for lowering interest rates has strengthened. He pointed to Chairman Powell’s speech in Jackson Hole on Friday and said the Fed needs to test this rate-cutting cycle, which will likely mean multiple cuts.
Jennifer McKeon of Capital Economics said the central bank will likely refrain from making many predictions about the future at the Jackson Hole symposium and will instead emphasize its “reliance on data.”
“With most economies expanding, inflation returning to target, and financial markets stabilizing after recession fears a few weeks ago, there is less pressure to guide markets than in past events,” she noted. “But there are risks to keeping interest rates too high for too long.”
Company Highlights:
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Ford Motor Co. is again overhauling its electrification strategy, canceling plans for an all-electric sports utility vehicle, a change that could cost the automaker about $1.9 billion.
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Walmart Inc. has raised about $3.6 billion by selling a stake in Chinese e-commerce company JD.com, ending an eight-year partnership that has seen revenues decline amid a tough environment for China’s tech giants.
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US coal producer Consol Energy has agreed to merge with Arch Resources for $2.3 billion as the shift to greener fuels threatens the industry’s long-term prospects.
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Brookfield Asset Management is asking banks to come up with about 9.5 billion euros ($10.6 billion) of debt for a possible privatization of Spanish drugmaker Grifols SA, according to people familiar with the matter.
Major events this week:
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Eurozone HCOB PMI, Consumer Confidence, Thursday
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ECB to publish report on July interest rate decision on Thursday
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U.S. initial jobless claims, existing home sales, S&P Global PMI on Thursday
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Japan Consumer Price Index, Friday
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Bank of Japan Governor Kazuo Ueda will attend an extraordinary Diet session on Friday to discuss a July interest rate hike
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U.S. new home sales Friday
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Jerome Powell speaks in Jackson Hole on Friday
Some of the key market developments:
stock
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The S&P 500 was up 0.4% as of 3:01 p.m. New York time.
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The Nasdaq 100 rose 0.4%.
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The Dow Jones Industrial Average rose 0.1%.
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The MSCI World Index rose 0.4%.
currency
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The Bloomberg Dollar Spot Index was little changed.
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The euro rose 0.3% to $1.1158.
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The British pound rose 0.5% to $1.3101.
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The Japanese yen rose 0.3% to 144.84 yen to the dollar.
Cryptocurrency
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Bitcoin rose 2.6% to $60,857.51.
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Ether rose 2% to $2,641.16.
Bonds
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The yield on the 10-year Treasury note fell 3 basis points to 3.78%.
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German 10-year bund yields fell 2 basis points to 2.19%.
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UK 10-year government bond yields fell 2 basis points to 3.89%.
merchandise
This story was produced with assistance from Bloomberg Automation.
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