Highlights
News coverage suggesting the Federal Reserve may kick off its easing cycle with a 50 basis point move next week lifted equities Friday after similar sentiment fueled a rebound late Thursday. The Dow Jones industrial average and the Nasdaq both gained 0.7 percent while the S&P 500 rose 0.5 percent. Bond yields and the dollar declined while oil prices edged up.
The move started late Thursday on a story in The Wall Street Journal that said the odds for a 50 basis point move were better than the market had been pricing in. Then came former New York Federal Reserve President William Dudley's comment that there was a good case for a half point move, and finally, a story in the Financial Times Friday called the decision between 25 and 50 a very close call.
Friday's news of a downtick in one-year inflation expectations, even as consumer sentiment rose, added to hopes for a larger rate cut and supported the soft landing narrative. Federal funds futures are pricing a 47 percent chance of a half point move compared with 34 percent late Thursday and 14 percent before the Wall Street Journal article came out. Meanwhile, economists overwhelmingly expect a 25 basis point move next week but they look for bigger cuts later in the year.
The rate cut talk fueled stock gains across the board but rate-sensitive cyclicals outperformed slightly and smaller cap stocks were notably higher. Strongest sectors included industrial metals, chemicals, regional banks, credit cards, media, airlines, machinery, homebuilders and chipmakers. Lagging but not lower were pharma, aerospace & defense, parcels & logistics, and China tech.
The move started late Thursday on a story in The Wall Street Journal that said the odds for a 50 basis point move were better than the market had been pricing in. Then came former New York Federal Reserve President William Dudley's comment that there was a good case for a half point move, and finally, a story in the Financial Times Friday called the decision between 25 and 50 a very close call.
Friday's news of a downtick in one-year inflation expectations, even as consumer sentiment rose, added to hopes for a larger rate cut and supported the soft landing narrative. Federal funds futures are pricing a 47 percent chance of a half point move compared with 34 percent late Thursday and 14 percent before the Wall Street Journal article came out. Meanwhile, economists overwhelmingly expect a 25 basis point move next week but they look for bigger cuts later in the year.
The rate cut talk fueled stock gains across the board but rate-sensitive cyclicals outperformed slightly and smaller cap stocks were notably higher. Strongest sectors included industrial metals, chemicals, regional banks, credit cards, media, airlines, machinery, homebuilders and chipmakers. Lagging but not lower were pharma, aerospace & defense, parcels & logistics, and China tech.
Definition
Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.
Description
Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.
