Last week, Federal Reserve Chairman Powell's speech sparked a global stock market celebration. At the annual economic symposium of central banks held in Jackson Hole, Wyoming, Powell indicated that the time for a rate cut has come, as risks in the job market are on the rise, and his latest remarks have brought a September rate cut closer to reality.
Now, the three major stock indices have recouped the losses caused by the recession panic at the beginning of the month. Whether the expectation of easing can help the market once again launch an assault on historical highs remains to be seen.
The Fed's rate cut is imminent.
Following the Fed's meeting minutes suggesting consideration of a rate cut in September, Powell's latest speech at the Jackson Hole global central bank annual meeting has made the timing of a policy turning point imminent.
"Overall, the economy continues to grow at a solid pace, but inflation and labor market data show that the situation is evolving. As we emphasized in our last Federal Open Market Committee (FOMC) statement, the upside risks to inflation have diminished, and the downside risks to employment have increased," Powell said in his speech, "We are monitoring the risks to both sides of our dual mandate. The timing for adjusting the direction of policy is clear, and the timing and speed of the rate cut will depend on upcoming data, the changing outlook, and the balance of risks."
Advertisement
Data from the U.S. Department of Labor earlier last week showed that in the 12 months ending this March, the number of new jobs in the United States was revised downward by 818,000,有望创下2009年以来新高. Recent data also reflect that the U.S. job market has gradually returned to normal levels, and the demand for manufacturing jobs is facing a severe test.
Regarding the job market, Powell believes that the nearly one percentage point increase in the unemployment rate over the past year is mainly due to an increase in labor supply and a slowdown in hiring, rather than an increase in layoffs. However, he also emphasized that the Fed wants to prevent any further erosion. At the beginning of this tightening cycle, Powell had previously mentioned that "pain" in the labor market is a necessary condition for controlling inflation; now this idea has changed.
Bob Schwartz, a senior economist at Oxford Economics, told First Financial Journal that job growth is not as strong as previously thought, but the initial benchmark revision for non-farm employment will not have a significant impact on the Fed's thinking because they are backward-looking. However, he believes that the recent job growth is a concern for the Fed, as the labor market may be more vulnerable, and job opportunities are not enough to keep up with the growth of the working-age population.
Long-term U.S. Treasury yields have fallen due to the prospect of easing, with the 2-year U.S. Treasury, which is closely related to interest rate expectations, falling 151 basis points to 3.91% for the week, and the benchmark 10-year U.S. Treasury falling 86 basis points to 3.81%. Traders have increased their bets on a more substantial rate cut in September, with Fed fund futures currently estimating a 37% chance of a 50 basis point rate cut next month, up from about 25% late last Thursday, although 25 basis points remains the most popular.
James Orlando, a senior economist at TD Securities, wrote in a report that although Powell did not concede much on the expected speed of rate cuts, there seems to be no reason for a substantial 50 basis point rate cut at the moment.Schwartz told Yicai that the minutes of the FOMC meeting in July and Powell's speech at the Jackson Hole Global Central Bank Annual Conference once again clearly indicated that the Federal Reserve would cut interest rates in September. "From now until then, there would need to be a significant negative surprise in the labor market data to justify a rate cut of more than 25 basis points." He believes that the Fed is trying to adjust monetary policy in the fog of data, and cautious risk management is to start cutting rates; otherwise, the labor market weakness will get worse. With the resilience of consumers, and inflation trends gradually returning to the 2% target, expectations for rapid and substantial rate cuts may fade.
The US stock market is expected to continue its upward trend.
Expectations of a Fed rate cut have driven the US stock market to continue its rebound momentum. Dow Jones market statistics show that all sectors, except the energy sector, recorded gains last week, with the real estate, materials, and non-essential consumer goods sectors rising by more than 2%. The industrial, healthcare, consumer goods, financial, and utility sectors also rose by more than 1%.
Stars of the artificial intelligence and technology sectors are making a comeback. Chip maker Nvidia rebounded nearly 30% from its low, leading the Philadelphia SE Semiconductor Index back towards a technical bull market, with the market turning its attention to next week's latest earnings reports.
At the same time, the gradual return of risk appetite has calmed the Chicago Board Options Exchange Volatility Index (VIX), and Wall Street's "fear index" quickly fell back after touching a four-year high at the beginning of the month. As of last Friday's close, the cumulative decline exceeded 70%, returning below the long-term average, indicating a return of investors' risk appetite.
Fund flow data shows that a monetary policy shift is imminent, coupled with strong US retail sales data, optimistic consumer confidence data, and moderate inflation data indicating a robust economic foundation, which has boosted investor confidence. Data compiled by the London Stock Exchange Group (LSEG) shows that investors net bought $5.97 billion in US stock funds last week, a five-week high.
UBS Wealth Management said in a report to Yicai reporters that as the labor market cools faster than expected and inflation continues to slow down, the Fed is expected to start cutting rates in September, with one cut each at the November and December meetings. If the job market deteriorates or consumer spending weakens significantly, there is a possibility of a 50 basis point rate cut in September. "It is worth noting that historically, rate cuts by the Fed during non-recession periods tend to be good for the stock market, so we continue to be optimistic about high-quality growth stocks," UBS Wealth Management wrote.
Charles Schwab wrote in its market outlook that last week the US stock market experienced a pullback, but thanks to Powell's dovish speech, the US stock market regained its upward momentum. The policy shift mainly benefits the rate-sensitive areas of today's market, such as the Russell 2000 Index. However, investors still need to weather the bearish seasonal environment associated with August and September. In addition, the forward price-to-earnings ratio of the S&P 500 Index is 21.5, and it may be more difficult to achieve additional upside without raising earnings growth expectations.
The institution believes that the focus of the coming week is first whether the rotation trading will be reignited, and secondly, Nvidia's earnings report, which may add some momentum to the technology sector or pour cold water, such as guidance issues (the potential impact of Blackwell's shipment delays). Overall, the upward momentum in the first half of the week may continue to be driven by rate cut expectations, and the second half of the week may see some fluctuations with Nvidia's performance and market reaction.
Comments