Wall Street Roars Back as Rate Cut Bets Surge
The S&P 500 climbed 1.8% Thursday – its strongest single-day gain since May – after Federal Reserve officials signaled openness to earlier-than-expected monetary easing. Markets now price in 60% odds of a September rate cut following the Federal Reserve’s July meeting, where policymakers acknowledged slowing inflation despite holding rates at 5.25%-5.50%.
Dissents Fuel Policy Pivot Speculation
Two FOMC members broke ranks to advocate immediate cuts, the first dual dissent since March 2022. “This fractures the dovish consensus we’ve seen through 2023,” noted a UBS strategist. Traders responded aggressively, with fed funds futures now forecasting 1.5 cuts by December compared to just 0.25 expected pre-meeting.
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Real Estate, Tech Lead Charge
- Nasdaq Composite jumps 2.3% as big tech benefits from lower discount rates
- REIT sector up 3.1% – best performance since November 2022
- 10-year Treasury yield falls 14 basis points to 4.15%
The rally extended beyond interest-rate sensitive sectors, with small caps (Russell 2000 +2.1%) joining the surge. Trading volume hit $468 billion on US exchanges – 22% above 30-day average.
Forward Guidance: Data Decides Timeline
While markets cheer, the Fed emphasized future decisions remain “data dependent.” Upcoming CPI reports and employment figures will likely determine whether cuts begin in September or December. September rate cut probability currently hovers near coin-flip odds at 55%.
Mortgage markets moved fastest, with 30-year fixed rates dropping 0.25% post-announcement according to industry surveys. Corporate borrowers also benefited, with investment-grade bond spreads tightening 5 basis points.
“The Fed’s inaction speaks louder than words,” suggests a U.S. Bank analysis. “By simply acknowledging progress on inflation, they’ve effectively loosened financial conditions.” As traders price this new reality, all eyes turn to July’s payrolls report and CPI data – the next potential market catalysts.
