The S&P 500 Index ($SPX) (SPY) on Wednesday rose +0.32%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +1.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +0.04%. September E-mini S&P futures (ESU25) rose +0.32%, and September E-mini Nasdaq futures (NQU25) fell -0.01%.
The S&P 500 index and the Nasdaq 100 Index both posted new record highs on Wednesday before falling back. US stocks saw support from stronger expectations for interest rate cuts through year-end as Treasury Secretary Bessent weighed in with his call for a 150-175 bp rate cut. Stocks also saw support from Wednesday’s -5 bp decline in the 10-year T-note yield.
Treasury Secretary Scott Bessent on Wednesday said that interest rates are “too constrictive” and that rates “should probably be 150, 175 basis points lower.” He added, “There’s a very good chance of a 50 basis point cut. We could go into a series of rate cuts here, starting with a 50 basis point rate cut in September.” The Fed is currently targeting the federal funds rate in the range of 4.25%-4.50% and the effective rate is currently at 4.33%.
The markets have started to think about the chances for a -50 basis point rate cut in September, based on Monday’s largely benign CPI report and the fact that the US labor market is slowing, with average monthly payroll growth in May-July of only +35,000. On a year-on-year basis, Tuesday’s July headline CPI of +2.7% y/y was slightly weaker than expected, but the core CPI of +3.1% y/y was slightly stronger than expected.
The federal funds futures market on Wednesday boosted the odds to 100% for a -25 bp rate cut in September and a slight 7% chance of a -50 bp rate cut. Those expectations were more dovish than the 96% chance for a -25 bp rate seen Tuesday and the 40% chance seen before the July payroll report was released on August 1. The federal funds futures market is currently discounting an overall -64 bp rate cut by the end of this year to 3.69%, and an overall -134 bp rate cut to 2.99% by the end of 2026.
The markets are awaiting…
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