Stocks ended the week on a high note after a five-day advance that helped erase most of the previous week’s losses. The S&P 500 (SPX) gained 4.02% and the Dow Jones Industrial Average (DJIA) rose by 2.60%. Meanwhile, the Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) surged by 5.95% and 5.93%, respectively.
After the previous week’s plunge, which was the worst for the technology stocks since the start of the year, this week they led the market’s recovery amid widespread conviction that Fed cuts are coming. However, opinions about the size of the first cut are almost even, with chances of a 0.50% rate cut reaching 45% based on Fed Funds futures trading data.
The former New York Fed President Bill Dudley said that rising risks to the job market now strongly outweigh the inflation risk, adding to the central bank’s case for a jumbo cut. On the other hand, in the past two decades almost all 50 bps cuts have come amid or immediately before a recession. While the labor market is clearly weakening, many economists say that job gains like those seen in August are inconsistent with a recession picture.
Contrastingly, the Fed’s current interest rate is at its highest level since 2001, leaving ample room for policymakers to reduce it by a large percentage while still staying above accommodative monetary policy levels. Against this backdrop, Wall Street analysts believe the central bank should make a larger cut just to avoid falling behind the curve amid a shifting balance of risks. An increasingly large cohort of economists and analysts now see high chances of the Goldilocks scenario, where the economy is still expanding, albeit at a slower rate, while the Fed takes the rates down to a neutral level over the course of the next few meetings. However, the central bank will certainly incorporate the incoming data in future economic assessments, which will affect the scope and pace of the impending rate decreases.
Three Economic Events
Here are three economic events that could affect your portfolio this week. For a full listing of additional economic events, check out the TipRanks Economic Calendar.
» August’s Retail Sales – Tuesday, 09/17 – This report provides information on the amount of money consumers are spending on various durable and non-durable goods, offering an insight into the health of the consumer. Retail Sales is a leading indicator, providing an outlook into the current quarter’s economic growth as well as into the inflationary factors on the demand side.
» August’s Industrial Production – Tuesday, 09/17 – This report shows the volume of production of U.S. industries like manufacturing, mining, and utilities. Although industrial production accounts for a smaller portion of the economic activity than services, its sensitivity to consumer demand and interest rates makes it a leading indicator of GDP growth and economic performance.
» August’s Existing Home Sales Change – Thursday, 09/19 – This report measures the sales volumes and prices of existing single-family homes, condos, and co-ops nationwide. Existing homes account for over 90% of total home sales in the country. This report provides insights into the health of the housing market, which has significant implications for economic activity throughout the U.S.
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