Markets ended the week in the positive after an expected (albeit larger) rate cut. Was the decision too aggressive or just what the doctor ordered?
Monday S&P 500 0.13% | NASDAQ -0.52%
Markets began the week with slight gains in the S&P500 while the NASDAQ pulled back in a week with big rate cut implications. The DOW Jones closed at an all-time high, capturing headlines on the day.
Tuesday S&P 500 0.03% | NASDAQ 0.20%
All was quiet as the first day of their two-day meeting began for the Federal Reserve Board. Attention will be focused on the size of the rate cut announced tomorrow and the commentary of those voting in the direction of monetary policy. Retail sales came and refuted the notion of any major pullback by the average spender.
Wednesday S&P 500 -0.29% | NASDAQ -0.31%
Rate cut day arrived and did not come without a swift market response. The Federal Reserve went outside consensus and cut rates by .50% instead of .25%. The S&P500 rose .50% right after the announcement but proceeded to fall .80% from the trading high for the day. Rate cutting cycles typically start with a smaller rate cut to ease into the new policy which contributed to the market swing. Markets initially celebrated that action towards monetary loosening had finally happened but later fell as reactions poured in regarding the bigger-than-anticipated cut.
Thursday S&P 500 1.70% | NASDAQ 2.51%
Markets reversed course and ramped up their hopes for a soft landing after the Federal Reserve cut rates for the first time since they began hiking in April 2022. Good News was considered good news for the day as the anticipation for a strong economy carrying markets into the end of the year prompted more buying. Jobless claims came in positive, which contradicted some past trends that job losses were starting to increase.
Friday S&P 500 -0.19% | NASDAQ -0.36%
Markets concluded the week in muted fashion but will certainly bring the case for a rebound to start strong next week. In the months following a rate cut, there is more chance of volatility, but history shows that growth follows in the 12 months following the start of the rate cutting cycle.
Conclusion S&P 500 1.36% | NASDAQ 1.49%
There was a sigh of relief in the investment community as economic data and the investment world collided following the decision to cut interest rates more than was originally expected. The logic of a rate cut of this size caused some initial concern that will continue to be debated but allowed for markets to recalibrate to a new interest rate environment moving forward. Questions revolved around whether the first cut was a delayed cut packaged into a jumbo rate cut. One thing we know for sure is that a majority of governors at the Federal Reserve opted for a full percentage point rate cut before the end of 2024. This would mean that there could be one more .50% rate cut before the end of the year or two separate .25% (regular) rate cuts. The Federal Reserve has stated their objective and that more data as the end of year approaches will ultimately determine whether more rate (or bigger) rate cuts are in store. In general, a rate cutting cycle implies subsequent rate cuts, but the question is whether they waited too long or are propping up a strong economy that is now moving forward in a post-inflationary economy. They’ll have to tread lightly but if the bulls have their way, the markets may just have more room to run.
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