The stock market has been on a tear, with the S&P 500 and Dow Jones Industrial Average reaching new highs following the Federal Reserve's decision to cut interest rates by half a point. This move marks a significant shift from the aggressive rate hikes that had previously brought rates to a 23-year high. The rate cut has been a catalyst for renewed investor optimism, pushing the CNN Fear & Greed Index into "greed" territory.
Strong economic data has further fueled the rally. The S&P 500 marked its 42nd record high close of 2024 on Thursday, while the Dow notched its 32nd record high close of the year on Friday. All three major indexes posted gains for the week, with the Dow up 0.6%, the S&P 500 adding 0.6%, and the Nasdaq Composite climbing about 1%.
One of the key drivers behind this bullish sentiment is the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge. The PCE showed that consumer prices rose 2.2% last month on an annual basis, down from 2.5% in July. This reading was below economists' expectations and brings the Fed closer to its 2% inflation target. Lower inflation rates are generally positive for the stock market as they reduce the likelihood of further rate hikes.
Additionally, fresh data has shown that the U.S. economy is on solid footing. The third estimate for second-quarter gross domestic product (GDP) revealed that the economy expanded at a robust 3% annual rate. This strong economic performance has led some economists, like Gregory Daco of EY, to suggest that the U.S. may be heading for a "soft landing" scenario. A soft landing occurs when inflation decreases without the economy entering a recession, a situation that only the most optimistic had hoped for.
The housing market has also shown signs of improvement. The average rate on a standard 30-year fixed mortgage fell to its lowest level since September 2022, according to Freddie Mac data. This decline has provided relief for Americans struggling with high housing costs. Mortgage refinance applications soared 20% last week, according to the Mortgage Bankers Association, indicating that homeowners are taking advantage of the lower rates.
Investors are now eagerly awaiting the September labor report, which is due next Friday. The report is expected to provide further insights into the health of the labor market. Employers added an estimated 142,000 jobs last month, up from July’s disappointing numbers, while the unemployment rate ticked lower to 4.2%. A strong labor market is crucial for sustaining economic growth and will likely influence the Federal Reserve's next move at its November policy meeting.
Tech stocks have been significant beneficiaries of the rate cut and strong economic data. Shares of Nvidia jumped 4.6%, Tesla rose 9.3%, and Meta Platforms added 1.1%. The tech sector's strong performance underscores the broader market's optimism and the continued investor appetite for growth stocks.
Internationally, China's stock market also saw gains after the central bank introduced a package of measures aimed at stimulating its struggling economy, including lowering interest rates. This move has provided a boost to global investor sentiment, further fueling the stock market rally.
Oil prices fell for the week, with the national average price of gas around $3.21, according to GasBuddy. The Financial Times reported that Saudi Arabia is planning to scrap its $100 a barrel price target for oil, which has contributed to the decline in oil prices. Lower oil prices are generally positive for the economy as they reduce costs for consumers and businesses.
Gold futures retreated from a fresh record high reached on Thursday. Gold has set multiple records this year, driven by central bank buying and concerns about the U.S. economy's health. However, the recent stock market rally and lower inflation rates have reduced the demand for gold as a safe-haven asset.
Bitcoin also saw gains this week, with the cryptocurrency trading at around $65,747 per coin. The rise in Bitcoin prices reflects the broader investor appetite for riskier assets in the current bullish market environment.
As the trading session comes to a close, stock levels may change slightly, but the overall sentiment remains positive. Investors are optimistic about the economic outlook and are positioning themselves to take advantage of the current market conditions.
