Stocks wavered as traders weighed the latest economic reports for clues on the outlook for Federal Reserve rates in the run-up to Jerome Powell’s speech Friday.
Equities fluctuated — with the S&P 500 less than 1% away from its all-time high. Treasury yields and the US dollar rose slightly. Data showed jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing. US manufacturing activity shrank at the fastest pace this year on further weakness in production, orders and factory employment. And existing-home sales increased for the first time in five months.
Wall Street traders also waded through a raft of remarks from US policymakers. Fed Bank of Kansas City President Jeffrey Schmid said he wants to see more data before supporting rate cuts. His Boston counterpart Susan Collins says “a gradual, methodical pace” of cuts is likely to be appropriate.
“The script is clear — the Fed is going to ease in September, but no one is portraying a desire to raise 50 basis points at this time,” said Andrew Brenner at NatAlliance Securities.
The S&P 500 hovered near 5,620. Peloton Interactive Inc. rallied as a profit beat signaled the struggling fitness company’s turnaround efforts are starting to bear fruit. Snowflake Inc. plunged as a sales outlook failed to reassure investors that the company will gain ground in the market for artificial-intelligence software tools.
Treasury 10-year yields advanced five basis points to 3.85%
Chris Senyek at Wolfe Research says that the Fed Chair has historically used his remarks at the Jackson Hole symposium as a way to reset expectations surrounding upcoming Fed policy changes.
“Our sense is Powell will maintain his dovish tone and signal a cutting cycle starting at the September meeting,” Senyek said. “However, contrary to what the futures market is pricing in for the remainder of 2024, we do not believe the Fed Chair will signal a cut larger than 25 basis points.”
Sam Stovall at CFRA also bets the next Fed-easing cycle will be initiated in a “more measured fashion” with a 25 basis point cut.
“This ‘slower to lower’ approach will likely be intended to signal that the Fed is not behind the curve, but will allow it to ensure that the embers of inflation have been fully extinguished before concluding that its mission has been completed,” he noted.
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