The anticipation that the US Federal Reserve will lower its key policy rate in September was reinforced by Jerome Powell’s dovish comments on Friday, which saw a spike in US markets.
The Fed funds target rate should be lowered because “the upside risks of inflation have diminished,” Powell stated in remarks that were eagerly anticipated before the Jackson Hole Economic Symposium.
“We do not see or welcome further weakening in labour market conditions,” Powell added in a speech that appeared to all but guarantee a rate cut at next month’s policy meeting, the first such cut in over four years.
“This is a dovish Powell today, and we see markets responding accordingly,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “What he’s suggesting here is if the labour market continues to weaken, we’re looking at a 50 basis-point rate cut in September as opposed to 25.”
After Powell’s written statements were made public, all three major U.S. stock indexes continued to rise, with megacaps Tesla, Apple, and Nvidia showing the greatest strength.
With respective jumps of 3.1% and 4.9%, small caps and regional banks were the outperformers.
“We’re having a minor rally after yesterday’s pullback,” said Jay Hatfield, portfolio manager at InfraCap in New York. “We’re seeing the rally you’d expect in interest rate-sensitive stocks.”
Building upon last week’s biggest Friday-to-Friday percentage increases of the year, all three indexes are expected to record weekly gains.
The Commerce Department’s revised second-quarter GDP and its comprehensive Personal Consumption Expenditures report, which includes the Fed’s preferred inflation yardstick, the PCE price index, will be among the many economic indicators that the data-dependent Fed will have to weigh next week before making its September rate decision.
The S&P 500 climbed 48.88 points, or 0.88%, to 5,619.52 at 2:19 p.m. EDT, the Nasdaq Composite gained 212.52 points, or 1.21%, to 17,831.87, and the Dow Jones Industrial Average gained 366.71 points, or 0.9%, to 41,079.49.
Except for consumer staples, all 11 of the S&P 500’s key sectors were performing well. The highest quarterly gain was reported for real estate shares.
With a $1 billion stock buyback plan and quarterly revenue beyond forecasts, Workday’s stock rose 11.9% on the Nasdaq, making it the largest percentage gainer. The company makes software for human resources.
After increasing its profit projection for the fiscal year 2024, Ross Stores saw a 2.1% increase in sales.
Intuit, the parent company of Turbo Tax, saw a 6.9% decline in revenue for the quarter.
On the NYSE, advancers exceeded declining ones by an 8.19-to-1 ratio; on the Nasdaq, advancers were favoured by a 3.77-to-1 ratio.
The Nasdaq Composite recorded 136 new highs and 38 new lows, while the S&P 500 recorded 74 new 52-week highs and no new lows.
