Markets Reach New Highs on Fed Interest Rate Cuts; Bonds Mixed
Good morning,
The Dow (+0.7%), NASDAQ (+1.8%), and S&P 500 (+1.0%) each gained for the week and set new all-time highs. Meanwhile, taxable bonds fell 0.2% and tax-free municipal bonds gained 0.2%. The 10-year Treasury yield rose 0.07% to finish the week at 4.13%.
The Fed cut interest rates by 0.25%, as expected by most economists and investors. After the announcement, Chairman Powell noted that the main purpose for the rate cut was to boost employment that has been weakening. He also explained that inflation continues to remain elevated, but that the Fed expects inflation to finish next year at 2.6%. The Fed also raised its expectations for GDP growth in 2026, which is encouraging. Lastly, the Summary of Economic Projects (the expectations of the Fed members) implied that there would likely be two more rate cuts by the end of the year, as the Fed moves its monetary policy from being restrictive to more neutral. This helped the markets maintain its momentum, as all major stock indices reached new all-time highs.
In other economic news, retail sales from August rose 0.6%, well above the estimate of 0.2%. That suggests that consumers continue to spend, overcoming tariff uncertainty. However, Leading Economic Indicators (LEIs - formerly my favorite economic indicator) fell in August, with six of the ten components being negative. While this is a signal that economic growth continues to weaken, the Conference Board (publisher of the LEIs) repeated that a recession is still not likely. Regardless, we will continue to watch the economic indicators as we use that data to guide our investment and allocation strategies.
Have a great day and terrific week!
Source: Yahoo Finance
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
