In his address at the Kansas City Fed's annual economic conference in Jackson Hole, Federal Reserve Chair Jerome Powell signaled a potential shift in monetary policy, hinting that the time might be right for adjustments to interest rates. His remarks had a notable impact on the financial markets, driving a significant rally in US stocks.
On August 23, US equities surged over 1% across the board, with the S&P 500 approaching its all-time high. Powell's comments suggested that inflation was nearing the Fed's 2% target, which, combined with concerns about the job market, indicated that rate cuts could be on the horizon. This prospect of reduced borrowing costs boosted investor sentiment and contributed to the rally.
"Powell is really data-driven. The unemployment is not alarming, but it's certainly higher than it has been in the past, and that would be something for him to take action on," said Kim Forrest, chief investment officer at Bokeh Capital Partners. This sentiment was echoed in the markets, which responded positively to the prospect of lower rates.
The Fed's July meeting minutes further stoked expectations of rate reductions, with some policymakers reportedly open to considering cuts as early as September. According to CME Group's FedWatch tool, traders have assigned a 65.5% probability to a 25 basis point rate cut at the Fed's upcoming September 17-18 meeting.
The rebound in US stocks comes after a period of decline earlier in August, driven by weaker employment data and global economic uncertainties. The S&P 500, which had previously dropped by as much as 9.7% from its peak in July, is now making a strong comeback. The major indexes have posted gains for two consecutive weeks, reflecting renewed optimism.
As of 11:41 am ET, the Dow Jones Industrial Average had climbed 475.25 points, or 1.17%, to 41,188.03. The S&P 500 was up 63.58 points, or 1.14%, reaching 5,634.22, while the Nasdaq Composite rose 262.29 points, or 1.49%, to 17,881.65.
The rally was broad-based, with all major S&P 500 sectors posting gains. Notable contributors included mega-cap growth stocks such as Nvidia, Broadcom, and Apple, which bolstered market performance. Additionally, the KBW Regional Banking index surged 5.4%, benefiting from the anticipated lower interest rates.
Individual stocks also saw significant movements. Workday surged 11.6% following a strong second-quarter earnings report and a $1 billion stock buyback announcement. Ross Stores gained 3.8% after raising its profit forecast for fiscal 2024. Conversely, Intuit fell 7.7% due to a weaker-than-expected revenue forecast.
Adding to the positive momentum, data from the Commerce Department's Census Bureau revealed that sales of new single-family homes in the US reached their highest level in over a year in July. This report further buoyed investor confidence, as evidenced by the advancing issues on the NYSE outnumbering decliners by a ratio of 10.48 to 1, and on the Nasdaq by 4.3 to 1.
The S&P 500 recorded 74 new 52-week highs, while the Nasdaq Composite logged 122 new highs against 34 new lows, underscoring the market's ongoing recovery and resilience amidst evolving economic conditions.
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