US stocks saw notable gains on Friday, buoyed by rising expectations of a substantial interest rate cut by the Federal Reserve. The S&P 500 (^GSPC) advanced by 0.5%, the Nasdaq Composite (^IXIC) increased by 0.7%, and the Dow Jones Industrial Average (^DJI) added 0.5%, marking a positive end to the week. This marks the fifth consecutive day of gains for both the Nasdaq and the S&P 500, driven by a rebound in technology stocks. For the week, the Nasdaq surged over 5%, its best performance of the year, while the S&P 500 and Dow Jones increased by 4% and 2%, respectively.
Expectations for a Larger Rate Cut
The recent uptick in stock prices follows a shift in Wall Street’s expectations regarding the Federal Reserve’s upcoming decision. Traders are now anticipating a 49% chance of a 50 basis point rate cut next week, a significant increase from earlier in the week. This speculation is influenced by recent reports suggesting that the Fed’s September 18 meeting could result in a more aggressive policy adjustment than previously expected.
Influential former New York Fed president Bill Dudley has also weighed in, advocating for a deeper rate cut, which has further fueled market optimism. The yield on the benchmark 10-year Treasury (^TNX) decreased to around 3.6% on Friday, reflecting the market’s shifting expectations.
Volatility and Market Reactions
Recent days have seen heightened volatility in the markets, largely due to shifting speculation over the Fed’s rate policy. Concerns about a potential labor market slowdown and recession risks have contributed to this volatility. However, the possibility of a more substantial rate cut appears to be providing some stabilization and optimism in the markets.
Corporate News and Stock Movements
In corporate news, shares of Trump Media & Technology Group (DJT) rose by 11.8% following comments from Donald Trump asserting he would not sell his shares in the company. Conversely, Boeing (BA) saw a decline of nearly 4% amid a strike by factory workers and concerns about a potential credit rating downgrade. Adobe (ADBE) also fell by approximately 8.5% after a disappointing outlook, while RH (RH) saw a surge of over 25% following strong earnings reports.
Consumer Sentiment and Economic Outlook
On the consumer front, the University of Michigan Consumer Sentiment Index rose to 69, marking a second consecutive month of improvement. This increase is partly attributed to perceptions of more favorable prices. However, consumer sentiment remains cautious due to ongoing uncertainties surrounding the upcoming election. Inflation expectations have also seen a decline, indicating a potential easing of pricing pressures.
Looking Ahead
As Wall Street prepares for the Federal Reserve’s crucial decision next week, the focus will be on whether the Fed opts for a more substantial rate cut or a more conservative adjustment. Market participants are closely watching these developments, which are expected to influence stock movements and economic conditions in the coming weeks.
The ongoing debates and speculations around Fed policy highlight the current volatility in financial markets, reflecting broader uncertainties about the future economic landscape.
