(Bloomberg) --Dovish comments from Federal Reserve Chair Jerome Powell helped extend a rally in stocks that started with surge in key technology companies, pushing the S&P 500 to its biggest advance since February.
Equities staged a powerful rebound, with the S&P 500 up over 1.5%. Treasury yields tumbled across the curve and the dollar slipped against all of its developed-market peers. Traders continued pricing in a minimum of two rate cuts this year, with the first still seen in the Fed’s next gathering.
Powell said the Fed could cut rates “as soon as” September.
His comments followed a Federal Open Market Committee decision to leave the federal funds rate in a range of 5.25% to 5.5%, a level they have maintained since last July. Policymakers also made several adjustments to the language of a statement released after their two-day meeting. Notably, the committee shifted to saying it is “attentive to the risks to both sides of its dual mandate,” rather than prior wording focused just on inflation risks.
“Press conference is somewhat more dovish than statement,” said Neil Dutta at Renaissance Macro Research. “All in all, it definitely sounds like they are just waiting for the sake of waiting. After all, by his own admission, all the data are already pointing in the direction he wants to see!”
The Nasdaq 100 climbed 3%. A Bloomberg gauge of the “Magnificent Seven” megacaps jumped 3.5%. The US$22 billion VanEck Semiconductor exchange-traded fund (ticker: SMH) climbed 7.6%. The Russell 2000 of small firms added 0.5%. Nvidia Corp. surged 13% on a bullish analyst call.
Treasury 10-year yields declined eight basis points to 4.06%.Oilrose after Hamas said Israel killed its political leader, stoking geopolitical risks. The yen rallied as the Bank of Japan raised interest rates and announced plans to cut bond purchases.
Wall Street’s Reaction to Fed:
· Peter Boockvar at the Boock Report:
Powell so wants to say today ‘let’s do it’ — but at the same time, he knows he doesn’t have to commit just yet before he gets more time and data.
· Ryan Detrick at Carson Group:
As expected, the Fed is setting the table for interest rate cuts starting at their next meeting in September. Inflation has improved substantially, and we’ve even seen wages come back to earth the last few months.
The reality is inflation is slowing and the Fed doesn’t need rates this high anymore. In fact, one very real worry is the economy could slow over the coming quarters and this is why rate cuts are necessary. We think three cuts this year are quite likely.
· Rajeev Sharma at Key Wealth:
The Fed’s language today has opened the door wider for a September rate cut, but falls short of committing to one.
Markets should anticipate a more likely signal for a September rate cut at Fed Chair Powell’s Jackson Hole address in late August, where he will have another month of jobs and inflation data in hand.
· Chris Larkin at E*Trade from Morgan Stanley:
Today was simply a placeholder—a day the markets were looking for more assurance about a September rate cut. They didn’t necessarily get anything concrete from the Fed’s statement, but if economic data continues to weaken over the next several weeks, the discussion may shift to speculation that the Fed has waited too long to pivot.
That sentiment has the potential to add to the stock market’s choppiness as we head toward what is historically its most volatile period.
· Quincy Krosby at LPL Financial:
The markets positive reaction suggests traders and investors alike see the Fed easing at the September meeting because inflation continues its path lower rather than an emergency cut because the labor market is deteriorating.
· David Russell, Global Head of Market Strategy at TradeStation:
The Fed inched toward a rate cut by noting higher unemployment and saying inflation is only somewhat elevated. The data has moved in Powell’s direction and now he’s getting ready to follow. Given the amount of time before the September meeting, this is what we’d expect at this time. Jobs data on Friday and CPI in two weeks are the next big items points. If those go well, we could get clearer messaging from Powell at Jackson Hole in late August.
· Brian Henderson at BOK Financial:
From an economic standpoint, if they cut twice this year, it won’t be a huge impact, and the rule of thumb is that it will take nine to 18 months before the economy feels the full brunt of rates going higher or, in this case, rates coming down. approach. Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.
· Seema Shah, Chief Global Strategist, Principal Asset Management, said:
The balanced statement should fool nobody. The Fed contemplates its word choice long and hard, and the new emphasis to risks to both sides of the dual mandate adds a slight dovish twinge which cracks the door open to the September cut that everyone is expecting.
· Scott Pike at Income Research + Management:
Today’s FOMC Statement, with the slightly dovish shift to the language around both inflation progress and labor market balance, helps moves us further down the path towards a rate cut at their meeting in September.
· Greg McBride at Bankrate:
The Fed has tee’d things up nicely for a September rate cut – as long as the inflation data cooperate. The escape hatch from cutting rates is if inflation doesn’t continue to demonstrate consistent movement toward the 2% target.
There are no less than four changes in wording within the Fed’s statement that acknowledges the evolving picture in the job market. If the job market should show evidence of cooling off at an alarming pace between now and the September Fed meeting, the first rate cut could be a larger half-point cut. There would be plenty of advance notice if this should come to pass.
· Julian Howard at GAM Investments:
Pressure to cut rates is mounting. However, for the Fed, it’s no slam dunk. Credibility matters a lot.
If the economy softens and inflation eases further but the Fed has done nothing in the meantime, that will be seen as sleepwalking. It is then likely the dreaded words ‘policy error’ will start to circulate. Today’s decision may not have been a surprise, but to say that September’s one will be closely watched would be an understatement.
· Florian Ielpo at Lombard Odier Investment Managers:
The statement shows a shift in the decision weights of the US central banks from a large weight on inflation to a balanced set of weights between unemployment and inflation. This opens the door to a September cut without calling it for sure.
· Bill Adams at Comerica Bank:
The unemployment rate is ticking higher, payrolls growth and wage growth are slowing, and inflation by the Fed’s preferred yardstick is trending lower and doesn’t look far from 2% with glasses off. These data are tangible evidence that the US economy is around the point where the Fed should take the foot off the brake.
· Jeffrey J. Roach at LPL Financial:
The Fed used today’s statement to prepare markets for upcoming rate cuts. As inflation rates improve and unemployment increases, the Fed can cut rates yet keep the nominal funds rate above the inflation rate. Markets will likely respond favorably to the subtle shift in tone.
Corporate Highlights:
· The US is considering unilateral restrictions on China’s access toAI memory chips and equipment capable of making those semiconductors as soon as next month, a move that would further escalate the tech rivalry between the world’s biggest economies.
· Boeing Co. appointed Kelly Ortberg as its next chief executive officer, entrusting a retired veteran of the aviation industry with one of the most complex turnaround challenges in corporate America.
· Mastercard Inc.’s profit beat estimates on strength in customer spending and online payments.
· Intel Corp. plans to eliminate thousands of jobs to reduce costs and fund an ambitious effort to rebound from an earnings slump and market share losses.
· Starbucks Corp. delivered results that were in line with expectations, assuaging investors who had been bracing for another meltdown after being blindsided by the previous quarter’s slump.
· Pinterest Inc. warned that revenue in the current quarter will be lower than analysts’ predictions.
· Delta Air Lines Inc. is bracing for a $500 million negative impact from the technology breakdown this month that led to thousands of canceled flights and tarnished the carrier’s reputation.
Key events this week:
· Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Thursday
· US initial jobless claims, ISM Manufacturing, Thursday
· Amazon, Apple earnings, Thursday
· Bank of England rate decision, Thursday
· US employment, factory orders, Friday
Some of the main moves in markets:
Stocks
· The S&P 500 rose 1.6% as of 4 p.m. New York time
· The Nasdaq 100 rose 3%
· The Dow Jones Industrial Average rose 0.2%
· The MSCI World Index rose 1.7%
Currencies
· The Bloomberg Dollar Spot Index fell 0.6%
· The euro was little changed at $1.0820
· The British pound rose 0.1% to $1.2853
· The Japanese yen rose 1.9% to 149.80 per dollar
Cryptocurrencies
· Bitcoin fell 1.7% to $65,043.01
· Ether fell 0.8% to $3,253.76
Bonds
· The yield on 10-year Treasuries declined eight basis points to 4.06%
· Germany’s 10-year yield declined four basis points to 2.30%
· Britain’s 10-year yield declined seven basis points to 3.97%
Commodities
· West Texas Intermediate crude rose 4.9% to $78.38 a barrel
· Spot gold rose 1.6% to $2,449.50 an ounce
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