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S&P 500 Snaps Two-Day Climb With Fed in Focus: Markets Wrap

By Richard Henderson
Subadra Rajappa, Societe Generale's head of US rates strategy, says the US markets are pricing in a very aggressive Federal Reserve monetary policy path between now and the end of the year. She speaks on "Bloomberg The Close."

(Bloomberg) -- The S&P 500 fell on Wednesday — after wavering for most of the session — as investors pondered the Federal Reserve’s path of rate cuts and digested housing-market data.

The Nasdaq 100 closed modestly higher. The 10-year US Treasury yield advanced to hover around 3.79%. The Bloomberg Dollar Spot Index rose after a 0.5% drop on Tuesday. 

Traders are now turning to earnings from Micron Technology Inc. and Jefferies Financial Group Inc., which posted results after the close. Micron shares jumped more than 10% in postmarket trading after the largest US maker of computer memory chips gave a strong revenue prediction for the current period, aided by demand for AI gear. Shares of Nvidia Corp. also climbed after the closing bell. 

Investors parsed fresh data on Wednesday for clues on the economy and housing market. Sales of new homes in the US fell last month while a separate set of data showed that mortgage rates have dropped for eight consecutive weeks, spurring demand for purchasing a home. 

“One of the things we’re watching is buyers catching up to the idea that mortgage rates are lower and that the break we’ve recently gotten in mortgage rates might be a lot of what we are expecting to get,” Skylar Olsen, chief economist at Zillow, said on Bloomberg Television. “Mortgage rates are not expected to go too much lower from here because they moved early with that anticipation.”

Post-Rate-Cut Catalysts

Traders are still seeking fresh catalysts after last week’s half-point rate cut by the Fed and as growth concerns linger. After China’s latest stimulus failed to ripple beyond Asian markets, investors are looking to a speech by Fed Chair Jerome Powell and price data at the end of the week. 

“The market has been overestimating Fed easing for the last three years and I think probably continues to do so,” said Michael Rosen, chief investment officer at Angeles Investments. “But what’s changed a bit with the 50 basis point move was a willingness by the Fed to move faster, to be more accommodative, to be more receptive to economic conditions, as opposed to just focusing on inflation.”

On Wednesday, Fed Governor Adriana Kugler said she “strongly supported” the central bank’s decision last week, adding it will be appropriate to make additional rate cuts if inflation continues to ease as expected. 

Going forward, the Fed’s level of success in guiding the US to a soft landing will be important in determining the outlook for other asset classes, said UBS Group AG’s Solita Marcelli. 

Gargi Chaudhuri, chief investment and portfolio strategist for the Americas at BlackRock, says the base case is for US growth to gradually slow but stay positive.

“However, a cooling economy is more vulnerable to exogenous shocks, and we look ahead to potential volatility-inducing events, including the US election,” she said. 

Earlier, China’s stocks rallied for a sixth day after the central bank lowered the interest rate charged on its one-year policy loans by the most on record. That followed a wide-ranging stimulus package announced the day before.

Fading optimism over the impact of China’s stimulus measures pushed Latin American currencies lower. The Mexican and Colombian pesos were among the worst performers.

ECB Wagers

In Europe, the region’s darkening economic outlook has fueled bets the European Central Bank will reduce rates again next month, while economists at HSBC Holdings Plc predict policy makers will start cutting interest rates at every meeting between October and April.

“The worry has been that all the economic data is looking quite shaky,” said Anwiti Bahuguna, global asset allocation CIO at Northern Trust Asset Management. “At the beginning of the year we did think we would see a nice uptick, but it started to slow down way more than any of us anticipated.”

Meanwhile, the Czech Republic indicated it will maintain a cautious approach to further monetary easing after cutting borrowing costs to the lowest level in almost three years.

Key events this week: 

  • ECB President Christine Lagarde speaks, Thursday
  • US jobless claims, durable goods, revised GDP, Thursday
  • Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday
  • China industrial profits, Friday
  • Eurozone consumer confidence, Friday
  • US PCE, University of Michigan consumer sentiment, Friday

Some of the main moves in markets: 

Stocks

  • The S&P 500 fell 0.2% as of 4:01 p.m. New York time
  • The Nasdaq 100 rose 0.1%
  • The Dow Jones Industrial Average fell 0.7%
  • The MSCI World Index fell 0.3%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.6%
  • The euro fell 0.5% to $1.1126
  • The British pound fell 0.7% to $1.3316
  • The Japanese yen fell 1.1% to 144.77 per dollar

Cryptocurrencies

  • Bitcoin fell 1.6% to $63,226.86
  • Ether fell 2.8% to $2,575.8

Bonds

  • The yield on 10-year Treasuries advanced six basis points to 3.78%
  • Germany’s 10-year yield advanced three basis points to 2.18%
  • Britain’s 10-year yield advanced five basis points to 3.99%

Commodities

  • West Texas Intermediate crude fell 2.6% to $69.71 a barrel
  • Spot gold rose 0.1% to $2,659.97 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Winnie Hsu, Sujata Rao, John Viljoen, Margaryta Kirakosian, Alex Nicholson and Cristin Flanagan.

©2024 Bloomberg L.P.