Stocks Rise on Fed Rate Cut Hopes, Economic Data Boosts Market Optimism

Stocks increased, and bond yields dropped as recent economic data raised hopes that the Federal Reserve might cut interest rates in September. All sectors in the S&P 500 saw gains, driven by the anticipation that the Fed's easing policy could enhance the outlook for U.S. companies. This optimism particularly benefited smaller firms, which outperformed large tech companies and extended their July rally to 10%.

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Economic Data and Consumer Sentiment

Recent reports supported the expectation of a rate cut. The core personal consumption expenditures (PCE) price index, which excludes food and energy, showed a modest increase in June, while consumer spending remained strong. However, consumer sentiment in the U.S. fell to an eight-month low in July due to high prices affecting personal finances.

Market Reactions and Analyst Insights

The S&P 500 rose by 1%, the Russell 2000 Index by 2%, and a Bloomberg index tracking major tech companies added 0.7%. Treasury yields for 10-year bonds fell by four basis points to 4.2%. Analysts, such as Tim McDonough from Key Wealth, suggest that the Fed could pave the way for a rate cut in September based on current data. Chris Larkin from E*Trade mentioned that while the economy is stable and inflation is steady, a rate cut next week is unlikely.

Investor Sentiment and Corporate News

Investor sentiment is positive, with a focus on upcoming earnings rather than inflation or interest rates. David Russell from TradeStation noted that the PCE data indicates a decline in inflation, allowing investors to concentrate on earnings. However, Bank of America's Michael Hartnett warned that a continued economic slowdown could lead to a shift away from high-performing tech stocks.

Noteworthy Corporate Developments

• 3M Co. increased its profit forecast, showing progress under its new CEO.

• McDonald's new $5 meal deal boosted U.S. visits and attracted more budget-conscious diners.

• Bristol Myers Squibb Co. raised its profit forecast for 2024 due to strong demand for new medications.

• Apollo Global Management Inc. agreed to buy International Game Technology Plc's gaming division and Everi Holdings Inc. for $6.3 billion.

• Apple Inc. lost market share in China to local competitors like Huawei Technologies Co.

Market Movements

• The S&P 500, Nasdaq 100, and Dow Jones Industrial Average each rose around 1%.

• The Stoxx Europe 600 climbed 0.8%, and the MSCI World Index increased by 0.9%.

• Bitcoin surged 4.1% to $67,928.32, and Ether rose 3.1% to $3,250.1.

• The yield on 10-year Treasuries dropped to 4.20%, while Germany's and Britain's 10-year yields also saw slight declines.

• West Texas Intermediate crude fell 1.4% to $77.21 per barrel, and spot gold increased by 0.8% to $2,384.50 an ounce.

Recent economic data and market activity suggest a possible shift in the Fed's monetary policy, with investors remaining hopeful for a September rate cut.

Also Read: Global Stock Markets Drop After Wall Street Tech Selloff