Key U.S. stock averages advanced Friday after Federal Reserve Chair Jerome Powell said policymakers will begin bringing its benchmark interest rate down from a two-decade high.
The Nasdaq Composite (COMP:IND) was +0.8%, the S&P 500 (SP500) +0.6%, and the Dow (DJI) +0.6%, but each index had been up by at least 1% as Powell addressed the central bank’s Jackson Hole Economic Symposium in Wyoming earlier Friday.
“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Nine of the S&P 500 (SP500) 11 sectors were higher following Powell’s confirmation that rate cuts were in the pipeline. The Real Estate sector (XLRE) was in the lead, +1.4%. Consumer Staples (XLP) and Communications (XLC) slipped. Traders in the fed funds futures market were pricing in 100bp worth of cuts for the three meetings left in 2024.
“Chairman Powell used the podium at the Jackson Hole Economic Symposium to … remove any uncertainty around the September FOMC meeting being a live one,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said. “While the pace and magnitude has yet to be determined, it has been made very clear that the shift in focus has moved towards the labor market and the broader trajectory of the U.S. economy.”
Powell said it’s unlikely the labor market will be a source of elevated inflationary pressures anytime soon. The Federal Open Market Committee will meet Sept. 17-18 to discuss how much to cut the benchmark rate that stands at 5.25%-5.50%.
“With inflation seemingly under control, signs of further cooling in labor market conditions could entice the Fed to move at a less measured pace,” Ripley said.
As a result of Powell’s address, Treasury yields fell as prices rose. The 10-year Treasury yield (US10Y) was down 4 basis points to 3.81%, and the 2-year yield (US2Y) fell 7 basis points to 3.94%.
On the economic calendar, U.S. new home sales grew 10.6% to 739K in July, higher than the 624K expected level.
Among stocks on the move, Workday (WDAY) +12% after the back-office software company raised its operating margin profile for the next couple of years.
Intuit (INTU) -8% after the company behind TurboTax and QuickBooks forecast FQ1 adjusted EPS of $2.33-$2.38, below the $2.79 consensus. FQ4 results beat expectations.
Cava Group (CAVA) +21% to a new all-time high following the restaurant chain’s strong Q2 results.
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