US stock markets ended the day marginally higher on Monday as investors assessed the impact of the Federal Reserve's recent rate cut and looked ahead to the week.
World stock indices also rose, buoyed by comments from Fed officials who said last week's big rate cut was justified. Meanwhile, the euro weakened against the dollar amid disappointing PMI data in the eurozone. Fed Support and a Stable Economy
Stock markets were supported by policymakers' comments and solid industrial data, building on last week's strong rally following the rate cut. Major indexes posted notable gains, bucking September's typically weak performance.
Investors focused Monday on speeches from three regional bank presidents who provided clues about the direction of monetary policy. Raphael Bostic, Neel Kashkari and Austan Goolsbee all backed the Fed's latest move and called for more rate cuts before year-end.
Traders are pricing in more action from the Fed at its next meeting in November, according to CME Group data and its FedWatch tool. That expectation was reinforced after Governor Christopher Waller said Friday that inflation could come in below the 2% target.
Despite initial expectations, rate outlooks have changed, leaving the future uncertain. Investors are tossing and turning possible scenarios to see how the Fed will act for the rest of the year. According to the latest LSEG data, markets are expecting a 74 basis point rate cut before the end of the year.
September economic data showed business activity in the U.S. remained stable. However, price increases for goods and services accelerated to their highest in six months, suggesting a fresh round of inflation in the coming months. This trend has analysts concerned that inflation pressures could rise again.
Many investors are taking a wait-and-see approach for now, rather than rushing to take decisive action, according to Sam Stovall, chief investment strategist at CFRA Research. "Investors are watching the situation and waiting for confirmation that the soft landing scenario for the economy will indeed become a reality," he noted.
On Monday, the leading US stock indices showed growth. The Dow Jones Industrial Average added 61.29 points, or 0.15%, closing at 42,124.65. The S&P 500 also rose by 16.02 points, or 0.28%, reaching 5,718.57. The Nasdaq Composite increased by 25.95 points, which amounted to 0.14%, and closed trading at 17,974.27.
Of the 11 sectors of the S&P 500, eight ended the day in the plus. The leaders were energy companies, which showed growth of 1.31%. Meanwhile, healthcare stocks fell 0.25%, the worst performer of the day.
The stock market continues to be dominated by companies sensitive to interest rate changes. Tesla posted a solid 4.65% gain, while Meta (banned in Russia) shares added 0.6%, helped by Citigroup raising its target price on the stock.
The Russell 2000 index, which tracks small-cap companies, fell 0.25%. This reflects some uncertainty in the small-cap sector amid overall gains in the leading indices.
Investors are eagerly awaiting the release of personal consumption expenditure data for August, which is considered the Federal Reserve's leading inflation indicator. The release is expected to be the key event of the week, determining the Fed's next steps regarding monetary policy.
Intel was among the biggest gainers, up 3.05% on news of a possible investment of up to $5 billion from Apollo. However, not all the news in the market was positive: General Motors shares fell 1.72% after Bernstein downgraded the company from Outperform to Meet Market.
On the New York Stock Exchange (NYSE), advancers outnumbered decliners by a factor of 1.48 to 1. The NYSE also recorded 505 new yearly highs and just 36 new lows. As for the S&P 500, the index recorded 62 new 52-week highs and just one new low. Meanwhile, the Nasdaq Composite posted 80 new highs and 123 new lows, highlighting the uneven performance of the tech market.
U.S. Treasury yields rose as investors continued to analyze the likelihood of a short-term recession in the world's largest economy. Market attention was focused on statements from Federal Reserve officials, especially after the central bank began easing monetary policy last week by cutting interest rates by 50 basis points.
Three key Fed officials made comments Monday highlighting the importance of the recent decision. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, called the cut "the right thing" to support the economy. Austan Goolsbee, president of the Chicago Fed, said he expects the Fed to continue cutting rates over the next year. And Raphael Bostic, head of the Federal Reserve Bank of Atlanta, noted that the US economy is close to normal levels of inflation and unemployment, and that monetary policy should return to its usual parameters.
According to Quincy Crosby, chief strategist at LPL Financial, market participants are closely monitoring whether the rate cut is not associated with excessive fears of the FOMC, but reflects a real weakening of inflation. In the context of elevated stock valuations, macroeconomic data begins to play a key role. Each publication of statistics will be perceived as an indicator of further developments.
Last week was favorable for the US stock market, which recorded confident growth. The MSCI index of stocks around the world added 2.68 points, or 0.32%, reaching 840.05. The European STOXX 600 index also showed positive dynamics, increasing by 0.4%.
The US rate futures market is pricing in the likelihood of a rate cut at the November meeting, according to the latest data from LSEG. 54% of market participants expect a 25 basis point cut, while 46% expect a larger 50 basis point cut. A total of 78 basis points of rate cuts are forecast for 2024.
New data from S&P Global showed that business activity in the eurozone slowed sharply this month. The services sector, which dominates the region, remained flat, while the decline in manufacturing continued to gather momentum. This is worrying, especially amid rising inflation risks.
The situation in the US is somewhat different. Business activity remained stable in September, but average prices for goods and services rose at their fastest pace in six months. This could signal that inflation could accelerate in the coming months, which could impact the Fed's future decisions.
The dollar index, which tracks the dollar against major currencies such as the euro and yen, rose 0.14% to 100.92. At the same time, the euro lost 0.45% to $1.1112. Against the Japanese yen, the dollar weakened 0.21% to 143.61 yen.
The key event of the week for investors remains the release of inflation data in the form of the core personal consumption expenditure (PCE) index, which will be released on Friday. This is the Fed's preferred gauge of inflation trends. Durable goods orders data is also expected, adding uncertainty to market expectations.
Yields on long-term U.S. Treasury notes, ranging from seven-year to 30-year notes, hit their highest in three weeks last week, underscoring investor concerns about the long-term outlook for the economy.
The U.S. yield curve, an important indicator of economic expectations, continues to steepen. The gap between the yield on two-year and 10-year Treasuries reached 17.9 basis points, the sharpest since June 2022. The trend points to heightened concerns among investors about the future health of the U.S. economy.
The benchmark 10-year note yield rose 2.3 basis points to 3.751%, up from 3.728% on Friday. This is another sign of uncertainty in the market as participants continue to reassess risks ahead of further moves by the Federal Reserve.
Oil prices fell amid disappointing business activity data from the euro zone. U.S. crude lost 63 cents to settle at $70.37 a barrel, while Brent fell 58 cents to $73.90. The data reflects the global economic uncertainties that continue to weigh on energy markets.
Investors are wondering whether central banks have come too late to ease monetary policy to prevent a global economic slowdown, especially with concerns that such moves may not have the desired effect amid the global economic slowdown.
China's central bank cut its 14-day repo rate by 10 basis points this week after earlier disappointing market expectations by not cutting longer-term rates. Investors are now turning their attention to Thursday's Swiss National Bank meeting, which is already priced in for a quarter-point cut to 1.0%, with a 41% chance of a more aggressive 50 basis point cut.
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