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Stocks rise with jumbo Fed tapering

September 13, 2024
Arzu

US stocks gained momentum on Friday afternoon, setting the stage for strong weekly gains after Wall Street’s expectations of a Federal Reserve jumbo interest rate cut increased overnight.

The S&P 500 (^GSPC) rose 0.7%, while the tech-heavy Nasdaq Composite (^IXIC) rose 0.8%, pointing to a fifth straight day of gains for both gauges amid a rebound for tech stocks. The Dow Jones Industrial Average (^DJI) added 0.9%, or more than 350 points.

After nearly writing off the prospects for a major pivot in light of recent inflation and jobs data, stocks are rising as the market rewarms to the possibility of a half-point rate cut by the Federal Reserve. Traders now Priced at 49% chance A 50 basis point move next week, compared to 15% at one point on Thursday.

Read More: Fed projections for 2024: What experts say about the possibility of a rate cut

Chances of a 0.5% cut rose amid the reports Financial Times And The Wall Street Journal The size of the Fed’s September 18 decision will be a close call. Adding to the debate, influential former New York Fed President Bill Dudley said there was a “strong case” for deeper cuts.

The yield on the benchmark 10-year Treasury ( ^TNX ) fell 2 basis points to 3.66% on Friday. At the same time, the yield on 2-year notes, considered sensitive to monetary policy, fell to over 3.58%.

Markets have been rattled in recent days by shifting speculation about whether the central bank will opt for a quarter-point or half-point cut when it makes its first expected rate cut of the cycle. Concerns about labor market slack and the risk of a recession have helped fuel that volatility — something Wall Street believes will continue if a 0.5% cut comes through.

Among individual stocks, Adobe ( ADBE ) shares dipped in afternoon trade as the software maker’s outlook failed to show progress from its AI push. Meanwhile, Oracle ( ORCL ) stock rallied again, thanks to an upbeat forecast of revenue growth over the next five years fueled by cloud demand.

Boeing ( BA ) shares retreated as factory workers walked out of a strike that halted production across the planemaker’s Seattle hub, its largest.

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  • The case for a big central bank rate cut

    “We believe it is clear what the Fed will need to do next week: revise the policy rate lower by 50bp to adjust for the changing balance of risks,” JP Morgan analyst Michael Feroli wrote in a forecast note on Friday.

    Expectations for a jumbo rate cut by central bankers rose on Friday, according to the CME FedWatch tool. Financial Times And The Wall Street Journal Policymakers are at a loss to come to a conclusion. Investors are placing a roughly 49% probability on a 50 basis point cut at the Fed’s meeting next week, compared with 15% at one point on Thursday.

    Ferroli said the central bank should “front-load” its rate cuts because it would take nearly a year to return to the ideal interest rate policy every time central bankers eased rates by 25 basis points. Additionally, Ferroli writes, |in retrospect, it might have been appropriate to start the cycle in late July.”

    However, as Yahoo Finance’s Josh Shafer reports, there are reasons for the Fed to pursue a more dovish approach, primarily because a 50 basis point cut could be sent to Wall Street.

    But Feroli has an answer to this thought.

    “The committee may be concerned about sending an overly worrisome message about the outlook. Powell has proven himself to be a skilled communicator, and we believe he can articulate a level shift in rates aimed at reinforcing their forecast for a soft landing.”

  • Stocks trending in afternoon trade

    Here are some of the leading stocks on Yahoo Finance’s Trending Tickers page during Friday afternoon trading:

    Boeing (B.A) The planemaker’s shares retreated as factory workers walked out of a strike that halted production across the company’s largest Seattle hub. Credit rating agency Fitch said on Friday that the extended shutdown could risk a credit rating downgrade and affect Boeing’s operations.

    Adobe (ADBE): The software company plunged in afternoon trade after the outlook failed to show an improvement from its AI push. Shares fell nearly 9%.

    RH (RH): Shares of the furniture retailer rose more than 20% Friday afternoon, building on momentum from Thursday, when the company topped revenue and earnings estimates.

    Oracle (ORCL): The database software and company rose 1% after raising its fiscal 2026 forecast to $104 billion in fiscal 2029 sales.

  • A Boeing strike could risk a credit rating downgrade

    Workers at Boeing’s West Coast factories began a strike on Friday, with Fitch saying an extended shutdown could risk a credit rating downgrade and hurt the planemaker’s operations.

    Boeing shares fell nearly 4% in afternoon trading Friday after its largest union voted to reject a contract offer for workers at the company’s Seattle hub, as plant workers began a strike for the first time in 16 years.

    The labor dispute comes as Boeing retreats from an even higher regulatory probe after a high-profile January incident in which a door panel on a 737 MAX jet snapped off in mid-air.

    If the strike continues beyond several weeks, Fitch said Boeing’s management would need to find new sources of cash flow to stay within its cash targets and within the ratings agency’s levels, Reuters reported.

    On the downside, if the parties resolve the strike before the two-week deadline, Fitch said labor action could trigger a rating change.

  • Stocks will pick up momentum in the afternoon session

    U.S. stocks gained momentum on Friday afternoon as expectations for a major cut from the Federal Reserve rose as much as 43%, according to the CME FedWatch tool.

    The S&P 500 (^GSPC) and the tech-heavy Nasdaq Composite (^IXIC) rose 0.7%, pointing to a fifth day of gains for both gauges amid a rebound in tech stocks. The Dow Jones Industrial Average (^DJI) added 1%, or more than 400 points.

  • Bets will rise on a Fed interest rate cut next week

    The mood on Wall Street has changed, with traders seeing a high chance the Fed will opt for a big, half-percentage-point rate cut next week, reversing expectations ahead of a previously more modest one-quarter cut.

    Chances of a 0.5% cut rose amid the reports Financial Times And The Wall Street Journal The size of the Fed’s September 18 decision will be a close call. Adding to the debate, influential former New York Fed President Bill Dudley said there was a “strong case” for deeper cuts.

    During Friday morning trading, the CME FedWatch tool predicted a 43% chance of a further cut of 50 basis points, while the odds of a more traditional 25 basis point cut were 57%. The odds were closer to 50-50 in the previous trading session, but the chance of a big cut on Friday was still higher than a day earlier, at 28% and a predicted 30% a week ago.

  • Consumer sentiment rose for the second month in a row

    US consumer sentiment improved for the second month in a row, reaching the level last seen in May and rising 2% from last month’s reading.

    The first September report from the University of Michigan Consumer Sentiment Index showed a rating of 69, driven by the perception that prices are becoming more favorable to consumers. The generally followed level of consumer confidence in the U.S. economy is well above the June 2022 low, when it registered about 40% negative.

    But “consumers remain safe because the election creates considerable uncertainty,” director of consumer research Jon Hsu said in a report released Friday.

    Inflation expectations for next year also improved, the report said, continuing a four-month trend of optimism that price pressures will cool. The current reading of 2.7% is the lowest since December 2020, the report said, falling within the range seen in pre-pandemic years.

    Longer-term expectations, however, were little changed, rising to 3.1% from 3% last month. They are “modestly higher” compared to pre-pandemic years, suggesting consumer perceptions are still being affected by the global health crisis and subsequent inflation.

  • Stocks rise as the market races closer to a half-point Fed cut

    U.S. stocks rose on Friday as Wall Street’s expectations set the stage for strong weekly gains after the Federal Reserve increased interest rate cuts overnight.

    The S&P 500 (^GSPC) rose nearly 0.2%, while the tech-heavy Nasdaq Composite (^IXIC) climbed above the flat line, pointing to a fifth straight day of gains for both gauges amid a rebound in tech stocks. The Dow Jones Industrial Average (^DJI) also added roughly 0.2%.

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