Wall Street traders sent stocks higher as bonds yields fell after a string of weaker-than-estimated economic reports reinforced the case for the Federal Reserve to start cutting rates this year.
In a shortened session ahead of the US holiday, the S&P 500 hit a fresh all-time high on bets Fed policy easing will keep fueling Corporate America. Treasuries climbed as data showed the services sector contracted at the fastest pace in four years, private payrolls rose at a more moderate pace and continuing jobless claims increased for a ninth straight week.
To Win Thin and Elias Haddad at Brown Brothers Harriman & Co., if the data cooperate, a September Fed cut will be “very much in play.”
“Bad news is good news,” said Fawad Razaqzada at City Index and Forex.com. “That’s how risk assets reacted in the aftermath of today’s US data releases, which all came out weaker than expected.”
Traders will get further insight into the state of the American labor market Friday. Economists anticipate a 190,000 gain in June nonfarm payrolls — a step-down from the previous month — with the unemployment rate holding at 4%.
The S&P 500 rose to around 5,535, notching its 33rd record in 2024. Tesla Inc. extended its rally into a seventh straight session, leading gains in megacaps — though Amazon.com Inc. fell. The stock market closed at 1 p.m. New York time, while the recommended close for Treasuries is 2 p.m. — when the Fed minutes will be released.
Treasury 10-year yields fell nine basis points to 4.34%. Swap traders are projecting almost two rate cuts in 2024, with the first in November — though bets on a September reduction increased. The dollar slipped.
“Clouds are developing in the macro picture, but the glass-half-full mindset of investors continues to drive markets higher,” said Mark Hackett at Nationwide.
A survey conducted by 22V Research shows that 40% of investors think the market reaction to Friday’s employment data will be negligible/mixed, 34% said “risk-on” and 26% “risk-off.”
“Investors are paying the most attention to payrolls,” said Dennis DeBusschere at 22V. “The focus on wage growth has dropped some, which is a bit surprising given Powell’s explicit focus on wages yesterday. He said service inflation, which has been sticky, is dependent on wages.”
The 22V survey also showed there is an “upside skew” to the unemployment rate assumptions.
Fed Chair Jerome Powell said Tuesday that the latest economic data suggest inflation is getting back on a downward path, but emphasized officials need more evidence before lowering interest rates. When he was asked what keeps him up at night, he pointed to the delicate balance between taming inflation and avoiding a significant deterioration in the labor market.
“Until employment weakens significantly there remains a fundamental support for the US economy, though there is some evidence of slowing,” said Don Rissmiller at Strategas. “Fed members have indicated they want to see more progress on inflation – fortunately the US economy still looks robust enough currently to take an extended rate pause. But the clock is ticking.”
Meantime, Fed Bank of New York President John Williams, who has deeply researched the natural rate of interest known as r-star, pushed back against recent commentary that it has risen since the pandemic.
The idea of a long-run natural rate of interest, which prevails when the economy is not responding to shocks and is growing at its potential, is central to monetary policy but cannot be directly observed. Officials aim to raise rates above the neutral level to cool the economy and fight inflation.
Some of the main moves in markets:
This story was produced with the assistance of Bloomberg Automation.
With assistance from John Viljoen, Sujata Rao and Winnie Hsu.
This article was generated from an automated news agency feed without modifications to text.