(Bloomberg) — The stock market rally that was on course to be the best week of 2024 lost momentum on Friday as traders analyzed the latest economic data to gauge the Federal Reserve’s policy outlook.
After a strong six-day rally, the S&P 500 showed fluctuations as it consolidated its gains. With Jerome Powell’s upcoming speech in Jackson Hole, Wyoming, Wall Street took a pause to assess a range of data suggesting that the Fed may not need to implement aggressive easing measures as the economy remains stable. This perspective has led traders to reduce their expectations for large rate cuts this week, although the market is still anticipating an initial cut in September.
Despite this, Friday brought a mix of economic readings. US consumer sentiment saw a rise in early August for the first time in five months, driven by more positive expectations about personal finances as inflation levels stabilized. However, this increase in sentiment was partly influenced by political factors following President Joe Biden’s announcement not to run for re-election. On the other hand, new-home construction dropped to its lowest levels since the post-pandemic period.
“Investors should be prepared for increased volatility in the short term as economic data may provide conflicting signals,” said Jeff Roach of LPL Financial.
Florian Ielpo of Lombard Odier Investment Managers also highlighted the contradictions in economic data, advising caution against excessive optimism.
“A new set of US data has convinced the markets that a recession is not imminent,” Ielpo stated. “However, doubts remain, more than what market valuations imply.”
The S&P 500 hovered around 5,545, with most major companies seeing gains. Alphabet Inc. led the way, while Applied Materials Inc. faced a decline after a sales forecast that fell short of investor expectations related to artificial intelligence spending.
Treasury 10-year yields remained stable at 3.92%, while the dollar weakened. Gold briefly exceeded $2,500 on hopes of an upcoming rate cut by the Fed. Oil prices declined as traders considered the impact of a slowdown in China and the possibility of an attack by Iran or its allies on Israel.
Fed Chair Powell is scheduled to speak at the Kansas City Fed’s Jackson Hole Economic Policy Symposium next Friday.
With the central bank poised to lower interest rates from a more than two-decade high, Powell’s remarks will be closely scrutinized for insights into how he views the economy following a weaker-than-expected jobs report and continued easing in inflation.
The Fed is widely expected to reduce borrowing costs at its next meeting on Sept. 17-18, but there is some uncertainty regarding the size of the cut.
“Powell’s speech is likely to emphasize that overall, monetary policy has been effective, and current rates are restrictive,” said Anna Wong of Bloomberg Economics. “He may indicate that the risks between the Fed’s mandates – employment and inflation – are evenly balanced. We anticipate a signal for a rate cut, without specifying whether it will be 25 basis points or 50 bps, which will depend on the August jobs report.”
Next week’s Jackson Hole symposium presents an ideal opportunity for the Fed to set expectations for policy adjustments in September, according to TD Securities strategists.
“We expect Powell to suggest that given recent progress, the Fed is likely to ease policy next month, without committing to the size of the rate cut,” they explained. “We anticipate a reduction of 25 basis points. The July FOMC minutes will provide insight into easing discussions on Wednesday.”
Although recent data point towards a 25-basis point cut in September as more probable than a larger reduction, the upcoming jobs report will play a crucial role in the final decision, according to Fawad Razaqzada of City Index and Forex.com.
“Any strong indications of a September cut at the Jackson Hole symposium could weaken the dollar and support the gold forecast,” he added.
Ralf Preusser of Bank of America Corp. noted that the next few weeks will determine whether the Fed opts for a 50-75 basis point cut this year or a more aggressive approach.
“We remain positive on US rates and would view a selloff induced by Jackson Hole as a buying opportunity,” he emphasized.
Corporate Highlights:
-
Texas Instruments Inc. is set to receive $1.6 billion in Chips Act grants and $3 billion in loans, as announced by the Biden administration on Friday, marking a significant boost for American semiconductor manufacturing.
-
Rivian Automotive Inc. has halted production of the electric commercial van it produces for Amazon.com Inc. due to a parts shortage, the latest supply chain challenge for the EV manufacturer.
-
Bayer AG shares surged following a major victory in the ongoing cancer litigation related to its Roundup weedkiller.
-
BHP Group and union leaders in Chile reached a preliminary wage agreement on Friday, paving the way for normal production to resume at the world’s largest copper mine.
-
A combination Covid-flu vaccine developed by Pfizer Inc. and BioNTech SE fell short of one of its goals in a final-stage trial, posing a setback for the companies as they explore new applications for their successful pandemic technology.
-
Autodesk Inc. continued to employ a controversial sales strategy despite promising investors that it would cease this practice, and disregarded internal warnings about the associated risks, according to previously undisclosed internal documents.
Market Updates:
Stocks
-
The S&P 500 showed minimal change as of 11:37 a.m. New York time
-
The Nasdaq 100 declined by 0.2%
-
The Dow Jones Industrial Average remained steady
-
The Stoxx Europe 600 increased by 0.3%
-
The MSCI World Index rose by 0.3%
-
Bloomberg Magnificent 7 Total Return Index saw minimal change
-
The Russell 2000 Index remained stable
Currencies
-
The Bloomberg Dollar Spot Index decreased by 0.3%
-
The euro saw a 0.2% rise to $1.0995
-
The British pound rose by 0.4% to $1.2902
-
The Japanese yen increased by 0.7% to 148.24 per dollar
Cryptocurrencies
-
Bitcoin rose by 2% to $57,831
-
Ether increased by 0.6% to $2,565.72
Bonds
-
The yield on 10-year Treasuries saw minimal change at 3.92%
-
Germany’s 10-year yield remained steady at 2.25%
-
Britain’s 10-year yield advanced by one basis point to 3.93%
Commodities
-
West Texas Intermediate crude fell by 1.7% to $76.84 per barrel
-
Spot gold rose by 1.2% to $2,486.84 per ounce
This article was created with the assistance of Bloomberg Automation.
–With contributions from John Viljoen and Richard Henderson.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.