S&P 500 Reaches New Heights as Likelihood of 2024-Q3 Rate Cut Rises

The S&P 500 (Index: SPX) reached new highs during the trading week ending on Friday, 12 July 2024. The index closed out the week at 5,615.35, some 0.9% higher than it finished the preceding week, after hitting a new all-time record high of 5,633.91 on Wednesday, 10 July 2024.

The biggest market-moving story of the week came on that day as Federal Reserve chair Jerome Powell testified during his second day of congressional testimony the Fed was standing by to cut interest rates. That reassurance combined with expectations of slowing inflation in the U.S. to push the index to its new record high.

That reassurance worked to reaffirm the CME Group’s FedWatch Tool forecast the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3). The tool anticipates the Fed will start a series of 0.25% rate cuts on that date, which will occur at 6-to-12 week intervals well into 2025.

We find that timing aligns with the current time horizon of investors, who continue focus on the current quarter of 2024-Q3 in setting current day stock prices. The latest update of the alternative futures chart shows the S&P 500′s trajectory mostly tracking along with the projected trajectory associated with investors closely focusing their forward-looking attention on 2024-Q3 within a small margin of error during the past week.

For more context, here’s a rundown of the week’s market moving headlines:

Monday, 8 July 2024

• Signs and portents for the U.S. economy:

• Oil settles lower on worries Hurricane Beryl could hit US demand

• Texas energy industry assesses damage after Hurricane Beryl batters Gulf coast

Fed minions thinking about what a strong vs weak jobs data looks like:

• U.S. ‘breakeven’ monthly job growth may be 230,000: SF Fed paper

Bigger bailouts developing in China:

• China’s central bank tweaks liquidity operations

BOJ minions claim to be happy with Japan wage and price inflation rates:

• Bank of Japan signals progress in wage, price hikes

• Japan’s base pay rises by most in 31-years, part-time workers see robust gains

Bigger trouble developing in the Eurozone:

• German exports fall more than forecast in May

Nasdaq, S&P, Dow ended mixed with inflation data and earnings on the horizon

• S&P 500 and Nasdaq notch record highs; chipmakers climb

Tuesday, 9 July 2024

• Signs and portents for the U.S. economy:

• Oil rebounds as U.S. stockpiles drop, interest rate cut outlook brightens

• Oil companies in Texas restoring operations following hurricane Beryl

Fed minions thinking about cutting rates, how to make big banks more profitable:

• US economy no longer overheated, Fed’s Powell tells Congress

• Fed’s Powell: “More good data” will “strengthen” case for rate cut

Exclusive: Fed may tweak rule that could save biggest US banks billions

• US bank profits face pressure from lower interest payments, higher credit losses

Bigger stimulus developing in China:

• China’s June new yuan loans seen surging on supportive policy: Reuters poll

BOJ minions see inflation driven by falling value of yen:

• Japan’s wholesale inflation picks up as weak yen raises import costs

Bigger trouble developing in Eurozone, ECB minions thinking about slowly lowering Eurozone interest rates:

• German insolvencies higher than expected in H1, reports Handelsblatt
• ECB can continue to gradually lower rates, Panetta says

S&P, Nasdaq end at record highs as Powell signals rate cuts ahead with inflation progress

• S&P 500 and Nasdaq notch record highs as Nvidia gains

Wednesday, 10 July 2024

• Signs and portents for the U.S. economy:

• Oil settles higher on hopeful demand outlook as US oil stocks sink

• Texas power outages hinder Hurricane Beryl recovery, delay oil infrastructure restarts

US regional banks to face increased scrutiny as CRE exposure stifles buybacks

Fed minions say they’re standing by to deliver rate cuts:

• Powell says Fed will cut rates when ready, regardless of political calendar

Bigger trouble developing in China:

• China June consumer inflation misses expectations amid anaemic demand

BOJ minions expect slower growth and Japan’s inflation to hit their target:

• BOJ to trim growth forecast, project inflation staying around target, sources say

More slowly growing trouble developing in Eurozone:

• German inflation confirmed at 2.5% in June

Nasdaq, S&P, Dow gain traction as Powell comments reassure traders ahead of CPI

Thursday, 11 July 2024

• Signs and portents for the U.S. economy:

• Monthly US consumer prices post first drop in four years as inflation subsides

• Tame US June CPI smoothes path for Fed ease

Oil rises settles higher; US inflation data feeds rate cut hopes

Fed minions swear they are going to stick a “soft landing” for the economy and will leap into action if unemployment rises:

• Fed’s Cook: US data consistent with a soft landing

• Cook says Fed would respond if unemployment starts to rise more quickly

Fed’s Goolsbee says US economy looks back on track to 2% inflation

Fed’s Musalem says cooler CPI data is ‘encouraging’

Fed’s Daly says one or two rate cuts could be appropriate

Bigger stimulus developing in China:

• Why does China’s central bank have a new cash management tool?
• China plenum to deliver policy agenda hindered by conflicting goals

ECB minions expected to deliver interest rate cuts for Eurozone:

• ECB to trim rates in Sept and Dec, risks tilted towards fewer cuts, Reuters poll shows
• Mag 7 weakness, soft earnings weigh on Nasdaq, S&P; Treasurys rally after CPI data

Friday, 12 July 2024

• Signs and portents for the U.S. economy:

• Oil rises as US inflation eases

Bigger trouble, stimulus developing in China:

• China June new bank loans miss forecasts, some money gauges hit record lows
• China’s exports top forecasts, but falling imports point to more stimulus

• Instant View: China’s June imports of crude oil, unwrought copper drop y/y

China’s relentless e-commerce price war leaves sellers struggling to make ends meet

China central bank to maintain yield curve, correct bond risks, state media says

Bigger trouble developing in Japan:

• Japan’s government set to trim economic growth forecast, sources say
• Japan consumer inflation to quicken as BOJ weighs interest rate hikes: Reuters poll
• Japan’s diaper makers look to adult market for revenue as births fall
• Japan steps up yen warnings, data suggest intervention
• BOJ survey shows wage growth spreading among small, medium Japanese firms

Nasdaq, S&P rebound to end the week on a positive note; Dow retakes 40K level

• Wall Street closes higher on bets for Fed rate cut

The Atlanta Fed’s GDPNow tool‘s forecast of annualized real GDP growth rate during 2024-Q2 bounced up to +2.0% from the +1.5% growth projected one week earlier.

Image Credit: Microsoft Copilot Designer.. Prompt: “An editorial cartoon of a Wall Street bull celebrating the Fed cutting interest rates”.

Postscript: The failed attempted assassination of former President Donald Trump on Saturday, 13 July 2024 while campaigning in western Pennsylvania has been suggested to have the potential to affect markets. How big its effect is may take weeks to be seen, but the thing to look for is how it might change investor expectations for what policies, particularly those related to taxes, will be judged to be likely to come out of Washington D.C. from 2025 through 2028.

For the record, most political events have little to no impact on stock prices, or rather, what effect they have is indistinguishable among the noise of day-to-day trading. Historically, the exceptions to that rule have come as a consequence of major changes in expectations for future tax policies. To the effect those are at stake in the outcome to 2024′s elections in the U.S., that’s where to look for any sustained impact to stock prices.