S&P 500 Soars to Record High Amid Rate Cut Bets

Last updated: July 3, 2024

wallstreet_direction_signWall Street surged, sending the S&P 500 to a fresh all-time high, as falling bond yields and weaker-than-expected economic data fueled hopes for a Federal Reserve rate cut this year.

In a shortened session ahead of the US holiday, traders bet on Fed policy easing to sustain business growth.

Treasuries climbed with data showing the services sector contracting at the fastest pace in four years, while private payrolls rose moderately, and continuing jobless claims increased for a ninth week.

“Bad news is good news,” said Fawad Razaqzada of City Index and Forex.com, highlighting how weaker data spurred risk assets.

Economists predict a 190,000 gain in June nonfarm payrolls, a slowdown from the previous month, with the unemployment rate holding at 4%. This will provide more insight into the labor market on Friday.

The S&P 500 rose to around 5,535, marking its 33rd record in 2024. Tesla extended its rally for a seventh session, leading megacap gains, though Amazon fell.

The stock market closed early at 1 p.m. New York time, with Treasuries recommended to close at 2 p.m. ahead of Fed minutes.

Treasury 10-year yields dropped nine basis points to 4.34%. Swap traders are forecasting nearly two rate cuts in 2024, with bets on a September reduction increasing. 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 22V Research survey found 40% of investors expect a negligible or mixed market reaction to Friday’s employment data, while 34% predicted a “risk-on” response, and 26% “risk-off.”

“Investors are paying the most attention to payrolls,” said Dennis DeBusschere at 22V, noting a surprising drop in focus on wage growth despite Fed Chair Jerome Powell’s emphasis on it.

Powell suggested inflation is easing but stressed the need for more evidence before lowering rates, balancing inflation control with labor market health.

“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.”

Fed Bank of New York President John Williams, who has researched the natural rate of interest, dismissed recent claims of its rise since the pandemic.

The natural rate, crucial to monetary policy, guides officials to raise rates above this neutral level to cool the economy and combat inflation.

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Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
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