Sarah Travers
The S&P 500 has achieved its most significant four-day rally this year, with a remarkable 1.7% surge. This upward momentum in the stock market was primarily driven by substantial gains in some of the world’s largest technology companies. The rally came in response to lower-than-expected inflation data, which has reinforced the speculation that the Federal Reserve might implement a widely anticipated interest-rate cut in September.
Inflation Data and Market Reactions
The market’s optimism was buoyed by recent data indicating cooling inflation. The Producer Price Index (PPI) rose less than forecasted, contributing to expectations that the Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index, would remain tame. This data suggests that the Federal Reserve could have room to lower borrowing costs while focusing more on a labor market that shows signs of slowing.
The latest inflation readings have bolstered confidence among US officials about the possibility of starting to reduce interest rates. Atlanta Fed President Raphael Bostic has indicated he is looking for additional data before supporting a rate cut but is likely to endorse a reduction by the end of the year.
Stock Market Performance
Amid these developments, the Nasdaq 100 saw a significant rise of 2.5%, while the Russell 2000, which tracks smaller firms, increased by 1.6%. Nvidia Corporation led gains among megacap stocks. Starbucks Corporation experienced a notable surge, climbing 25% after appointing Brian Niccol from Chipotle Mexican Grill Inc. as its next leader.
The rally wasn’t limited to stocks alone. Treasuries also saw gains across the curve, particularly in shorter maturities, while the dollar fell. The 10-year Treasury yield dropped by six basis points to 3.85%. Traders have now priced in a nearly 40 basis-point cut by the Fed in September and a total reduction of approximately 105 basis points for 2024.
Investor Sentiment and Future Expectations
Investor sentiment has been mixed. A survey by 22V Research revealed that 52% of investors expect a “risk-on” reaction to the upcoming consumer price index data. However, the percentage of respondents anticipating a recession remains elevated. Despite recent market volatility, investor optimism around US technology giants and the prospect of a soft economic landing has not waned.
Bank of America clients were net buyers of US equities for the first time in over a month, snapping up shares during the recent market turmoil and subsequent recovery. Institutional investors led net purchases, with technology and communications services recording the largest inflows for the week and cumulatively year-to-date.
Optimism Amidst Volatility
The recent rally in the S&P 500 and other indices highlights the market’s response to cooling inflation and the anticipation of potential interest rate cuts. While investor optimism remains high, particularly around US technology stocks, the market continues to exhibit volatility. As economic data releases approach, market participants remain cautious yet hopeful for a stable and positive trajectory in the months ahead.
