(Bloomberg) --Stocks climbed as the latest Federal Reserve minutes and a big downward revision of U.S. payrolls reinforced bets officials will cut interest rates in September.
Almost every major group in the S&P 500 advanced, with the gauge extending its August rally and approaching its all-time high. Shorter-term Treasuries outperformed, with two-year yields slumping almost 10 basis points before paring the move. Traders are once again pricing in more than 1 percentage point worth of easing by the end of this year, starting next month.
In the run-up to Jerome Powell’s speech in Jackson Hole Friday, traders scoured minutes from the latest Fed policy meeting. Several Fed officials acknowledged there was a plausible case for cutting rates at their July gathering before the central bank’s policy committee voted unanimously to keep them steady.
“The Fed minutes removed all doubt about a September rate cut,” said Jamie Cox at Harris Financial Group. “The Fed’s communication strategy is to make its meetings less of a market moving event, and they are following the script to the letter.”
To Bret Kenwell at eToro, with a “vast majority” of Fed members viewing a September rate cut as appropriate before the disappointing monthly jobs report, it seems all but certain that the Fed will cut next month.
“The question isn’t whether the Fed will cut rates in September, but rather, how much will the Fed cut?” he said. “The market is currently pricing in greater odds of a 25 basis point cut rather than a 50 basis point cut, which seems like the more likely outcome at this point, provided the August jobs report isn’t a drastic disappointment.”
The S&P 500 rose to around 5,620. Target Corp. climbed 10% after ending a string of sales declines in the second quarter, citing improved discretionary spending. Macy’s Inc. lowered its outlook for sales during the rest of the year.
Treasury 10-year yields fell one basis point to 3.79%. Oil extended its decline to the lowest in more than six months.
The Jackson Hole economic symposium kicks off Thursday — with Fed Chair Powell expected to speak on Friday morning. And the S&P 500 is on pace to enter the event with the second strongest year to date performance since the year 2000, according to data compiled by Bespoke Investment Group.
While performance leading up to Jackson Hole has been positive this year, the index has risen only a third of the time during the symposium across these prior instances with an average decline of 1.37% over the few days it takes place, Bespoke said. The index has also averaged declines the next day, week, and through the next Fed meeting. That’s roughly a three-week period after the last day of Jackson Hole.
“The volatility from the past month has settled, as macro fears subside, expectations were reset, and investors used the weakness as an opportunity to add to risk exposure,” said Mark Hackett at Nationwide. Ahead of Jackson Hole, Wall Street will likely be in “a wait-and-see approach until Friday.”
With the Fed poised to cut rates from restrictive levels and still strong economic and earnings fundamentals, the the environment remains supportive for stocks, with still strong economic and earnings fundamentals, and a Fed poised to cut interest rates from restrictive levels, according to Solita Marcelli at UBS Global Wealth Management.
“Our base-case year-end and June 2025 S&P 500 price targets remain 5,900 and 6,200, respectively,” she noted.
Marcelli believes quality growth remains well placed to outperform. Firms with competitive advantages and exposure to structural drivers should be better positioned to grow and reinvest earnings consistently, she noted.
While the annual revision to jobs growth wouldn’t usually impact trading, it got attention this time around due to the recent concern the labor market is cooling too much amid high rates. The number of workers on payrolls will likely be revised down by 818,000 for the 12 months through March. It was the largest downward revision since 2009.
“The main message from the revisions in my mind is reinforce just how ‘silly’ it is to let the next jobs number be the determinant in whether to go 25 or 50 in September,” said Neil Dutta at Renaissance Macro Research. “What this revision data imply is that whatever the next jobs number is going to be, it’s probably lower in reality.”
Krishna Guha at Evercore says the big payroll revisions will reinforce the Fed’s assessment that the labor market has been softening under restrictive policy and that it will need to recalibrate rates in a timely manner to prevent this from extending further than desired.
All this favors a relatively “low bar” for 50 basis-point rate cuts. The base case remains a string of 25 basis-point moves.
At Strategas, Don Rissmiller says the case for lower policy rates got stronger. The Fed will need to validate this rate cut cycle – which likely means multiple cuts, he noted, pointing to Powell’s speech on Friday at Jackson Hole.
To Jennifer McKeown at Capital Economics, central bankers are unlikely to offer much forward guidance at the Jackson Hole symposium, preferring to stress their “data dependence.”
“Since most economies are expanding, inflation is easing back to target and financial markets have stabilized after the recession scare a few weeks ago, there is less pressure for them to steer markets than there has been around past events,” she noted. “But they risk keeping rates too high for too long.”
Corporate Highlights:
· Apple Inc.’s vice president in charge of the App Store is leaving as the company reorganizes to respond to changes in global regulations.
· Ford Motor Co. is recalibrating its electrification strategy yet again, canceling plans for a fully electric sport utility vehicle in a shift that may cost the carmaker around US$1.9 billion.
· Walmart Inc. raised about $3.6 billion by selling its stake in Chinese e-commerce firm JD.com Inc., winding down an eight-year partnership that appears to be paying diminishing returns amid a challenging landscape for Chinese tech giants.
· U.S. coal producer Arch Resources Inc. agreed to merge with rival Consol Energy Inc. in a $2.3 billion deal aimed at creating a North American mining heavyweight to deliver the fuel around the world.
Key events this week:
· Eurozone HCOB PMI, consumer confidence, Thursday
· ECB publishes account of July rate decision, Thursday
· U.S. initial jobless claims, existing home sales, S&P Global PMI, Thursday
· Japan CPI, Friday
· BOJ’s Kazuo Ueda to attend special session at Japan’s parliament to discuss July hike, Friday
· U.S. new home sales, Friday
· Jerome Powell speaks in Jackson Hole, Friday
Some of the main moves in markets:
Stocks
· The S&P 500 rose 0.4% as of 4 p.m. New York time
· The Nasdaq 100 rose 0.5%
· The Dow Jones Industrial Average rose 0.1%
· The MSCI World Index rose 0.5%
Currencies
· The Bloomberg Dollar Spot Index was little changed
· The euro rose 0.2% to $1.1152
· The British pound rose 0.4% to $1.3090
· The Japanese yen rose 0.2% to 145.03 per dollar
Cryptocurrencies
· Bitcoin rose 4% to $61,664.01
· Ether rose 2.3% to $2,648.64
Bonds
· The yield on 10-year Treasuries declined one basis point to 3.79%
· Germany’s 10-year yield declined two basis points to 2.19%
· Britain’s 10-year yield declined two basis points to 3.89%
Commodities
· West Texas Intermediate crude fell 1.7% to $71.94 a barrel
· Spot gold was little changed
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