Fed Rate Cut Fuels Stock Market Rally
Good morning,
The Dow (+1.64%), NASDAQ (+1.49%) and S&P 500 (+1.39%) posted solid gains, continuing the strong performance from the prior week. Meanwhile, taxable bonds fell -0.22% and tax-free municipal bonds gained 0.17%. The 10-year Treasury yield rose 0.07% to finish the week at 3.73%.
In a week with all eyes on the Fed, investors cheered the news that the Fed decided to cut interest rates by 0.50%. This was shown by the strong stock market rally at the end of the week. While the interest rate cut was much anticipated, many were expecting a smaller cut of 0.25%. While some investors believed that a larger rate cut may signal hidden economic weakness, Chairman Powell assured investors that the economy is still strong. In the Summary of Economic Projections, sometimes referred to as the Fed's "dot plot", Fed members expect another 0.50% reduction in interest rates by the end of the year and a further 1.00% reduction in 2025.
Last week we also saw the release of the Leading Economic Indicators (LEIs), which showed a decline of 0.2% in August. These Leading Economic Indicators combine multiple forward-looking indicators to get a broad view of future economic activity. While the accuracy of the LEIs has been questioned of late, it currently shows that economic growth is still slowing and that we aren't out of the woods yet when it comes to a potential recession. On Tuesday, we will have the release of the Fed-favored inflation gauge in the personal consumption expenditures (PCE) price index. Investors will be keeping a close eye on this try and determine how aggressive the Fed will be during this easing cycle.
Have a great day, and a terrific week!
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