S&P 500 Rises as Federal Reserve Finally Commits to Rate Cuts

Speaking at the Federal Reserve’s annual retreat to Jackson Hole, Wyoming on Friday, 25 August 2024, Fed Chair Jerome Powell finally committed to cutting U.S. interest rates after months of playing “will they or won’t they, even though everybody knows we’re going to.”

The S&P 500 (Index: SPX) responded to the Fed’s commitment by rising 1.15%, ending the week at 5,634.61, up 1.45% from where the index closed out the preceding week.

That’s less impressive than might have been predicted, but the level of the S&P 500 is consistent with investors focusing their attention on the current quarter of 2024-Q3. Investors have reason to do so because now the question at the center of billions of investment decisions is no longer “will they cut?” or “when will they cut?” but instead is now “how much will they cut?”

The CME Group’s FedWatch Tool continues to anticipate the Fed will hold the Federal Funds Rate steady in its current target range of 5.25-5.50% until 18 September (2024-Q3). On that date, the Fed is expected to start a series of 0.25%-0.50% rate cuts that will occur at six-week intervals well into 2025.

In the latest update for the alternative futures chart, we find the trajectory of the S&P 500 running just above the top end of the redzone forecast range.

As regular readers will recall, that redzone forecast range is based on the assumption that investors would be shifting their forward looking attention from the distant future quarter of 2025-Q2 toward the nearer term quarter of 2024-Q4 during the period it covers. Instead, the Fed’s long-awaited commitment to cutting rates has prompted investors to draw their attention back to the current quarter, which is why the S&P’s trajectory has settled where it has without any more impressive change in its level on the biggest news of the week. If we were to re-draw the redzone forecast range to show that adjustment, the actual trajectory of the S&P 500 would fall well within the projected range.

As it is, without dramatic new information to compel it to perform otherwise, we think the S&P 500′s trajectory will increasing converge with the redzone forecast range shown on the chart because investors will have no reason to maintain their focus on the current quarter for much more than the next four weeks and will once again reset their forward time horizon. We think the next change will involve them shifting their attention toward 2024-Q4, which the redzone forecast range already assumes will happen.

Meanwhile, other things happened during the week that was, here are the week’s market moving headlines:

Monday, 19 August 2024

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

• US regional bank deals rise as lenders aim to bolster balance sheets
• Oil price dip keeps Brent below $80 on China demand woes

Fed minions now expected to deliver three rate cuts in rest of 2024, to signal upcoming policies at Jackson Hole event:

• Fed to deliver three 25 quarter-point rate cuts this year; recession unlikely: Reuters poll

• Fed’s Kashkari says appropriate to debate Sept rate cut, WSJ reports
• Fed’s Daly says it is time to consider adjusting borrowing costs, FT reports

Nasdaq, S&P, Dow end higher as investors wait for Powell Jackson Hole’s speech

Tuesday, 20 August 2024

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

• Oil slips for a third day on Middle East tensions, China demand concerns

Fed minions paying more attention to soon-to-be revised jobs data:

• Fed officials uneasy about job market as they get ready for Jackson Hole

• Powell’s Jackson Hole message may be tilted by upcoming revision on jobs data, LPL says
• Fed’s Bowman still cautious about changing policy stance

Bigger trouble developing in China:

• China’s rising youth unemployment breeds new working class: ‘Rotten-tail kids’

BOJ minions now expecting wage inflation, but won’t do much about it:

• BOJ highlights rising wage pressure from structural job market changes

ECB minions thinking about next Eurozone rate cuts, may have caught a break with German wage inflation:

• ECB may need to cut rates again in Sept, Rehn says
• German negotiated wage growth slows in likely relief for ECB

Nasdaq, S&P, Dow end lower, break win streaks as investors cast eye toward Fed rate views

• Wall St ends lower ahead of Jackson Hole, snapping multi-session rally

Wednesday, 21 August 2024

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

• US job growth in year through March was far lower than estimated

• US Jobs Revised Down By 818,000 In Election Year Shocker, Second Worst Revision In US History
• US Bureau of Labor Statistics under scrutiny again for latest data misstep

Oil slips on higher US crude stocks, easing Middle East tensions

• US oil export gains slow as output, global demand turn tepid

Fed minions thinking about when, how much to cut U.S. interest rates:

• Fed steaming toward September rate cut, minutes from meeting show

• FOMC Minutes Show “Vast Majority” See September Cut As Appropriate

Bigger bailouts developing in China:

• China central bank warnings on long-dated bonds aim to curb systemic risks, watchdog says

BOJ minions seeing Japan’s export economy slow, majority of economists think they’ll be forced to hike rates in Japan again this year:

• Japan’s July export growth lags expectations, volumes fall again
• BOJ to raise rates again by end-year, say 57% of economists – Reuters poll

S&P, Nasdaq, Dow end higher after Fed minutes point to rate cuts beginning in September

Thursday, 22 August 2024

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

• US business activity edges lower; pricing power ebbs further
• US existing home sales rise more than expected in July

Fed minions getting excited to start cutting U.S. interest rates, claim there won’t be any recession:

• Fed’s Schmid signals open mind on September rate cut
• Fed’s Harker is ready to start methodical course of rate cuts
• Fed’s Collins: will soon be appropriate to cut interest rates
• Fed has ‘clear path’ to achieving goals without recession, Collins says

Slowing decline in Japan’s factory output:

• Japan’s Aug factory activity declines slow, PMI shows

BOJ minions influencing global central bank policies as synchronized Japanification spreads:

• Quantitative Tightening Goes Global for the First Time, in Test for Markets

ECB minions get summer boost from Olympics, looking forward to next rate cut:

• Euro zone business activity gets boost from Olympics, PMI shows
• ECB policymakers shift focus to September meeting

Nasdaq slumps, S&P, Dow end down ahead of Powell’s potential signal on rate-cut sizing

• Wall St ends lower as tech shares weigh; Jackson Hole in focus

Friday, 23 August 2024

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

• US job market may be near tipping point, research shows
• Oil climbs over 2% after Fed’s Powell indicates US rate cuts
• New homes sales rise 10.6% in July spurred by lower mortgage rates

• U.S. Home Sales Edged Up in July, Prices Still Near Record Highs
• US home sales ended a 4-month slide in July amid easing mortgage rates, more homes on the market

Fed minions commit to cutting U.S. interest rates in September 2024:

• Fed’s Powell, in policy shift, says ‘time has come’ to cut rates

• Key quotes from Powell’s speech at Fed’s Jackson Hole conference

Fed policymakers flag rate cuts as job market cools

• Fed’s Goolsbee: Current rate policy too tight for economy

Studies find Fed actions more impactful than words, use mortgage bonds to influence economy’s momentum:

• Fed’s actions spoke louder than words in inflation fight, research shows
• Fed mortgage bond holdings play ‘central’ policy rule, paper says

BOJ minions looking at stagflation, claim’s they’ll get a benefit from Fed rate cuts:

• Japan’s core inflation picks up, but demand-driven growth below 2%
• Fed’s dovish shift a mixed blessing for BOJ rate hike plan

ECB minions getting excited to cut Eurozone interest rates again:

• Exclusive: ECB policymakers’ views converging on Sept rate cut, sources say
• ECB making good progress but job not done, Lane says

S&P, Nasdaq, Dow end higher after Powell says rate cuts are in the pipeline

• Wall Street ends sharply higher as Powell cements September rate cut hopes
• Rate-sensitive real estate stocks outperform broader markets

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 remained at +2.0% with no updates taking place during the past week. It will next be updated during the upcoming week.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of Federal Reserve officials dancing to celebrate interest rate cuts with a banner at the top that says ‘IT’S RATE CUTTING TIME!’” We’re not sure why three of the dancing Fed officials are Fed Chair Jerome Powell, but we’re running with the assumption that the AI was trained on images of the “Dancing Itos” from the era of the O.J. Simpson trial in the 1990s and couldn’t help itself….