General Market Analysis – 08/11/24

US Stocks Reach Record Levels as Fed Cuts Rates – Nasdaq Up 1.5%

US stock indices rose yesterday as investors responded to the election outcome and the anticipated 25-basis point rate cut by the Federal Reserve. While the Dow closed flat, the tech-focused S&P 500 and Nasdaq reached record highs, with the S&P gaining 0.74% and the Nasdaq closing up by 1.51%. Treasury yields pulled back from recent multi-month highs, with the 2-year yield falling 6.9 basis points to 4.218% and the 10-year yield dropping 9.1 basis points to 4.335%. The dollar also weakened, undoing much of Thursday’s ‘Trump Trade’ rise, with the DXY down 0.67% to 104.40. Oil prices climbed higher, with Brent crude up 0.95% to $75.69 and WTI up 0.93% to $72.36. Gold regained much of its recent losses, rising 1.2% to close at $2,691.36 in New York.

Challenging Times Ahead for the Fed

As widely expected, the Federal Reserve delivered a 25-basis point rate cut at the conclusion of its meeting yesterday. However, following the Republican sweep, the path forward may now be less predictable. When asked about the election results and their impact on the Fed’s outlook, Jerome Powell remained cautious, stating that the Fed would continue to be guided by data in the short term. The emphasis on ‘short-term’ indicates awareness of potential inflationary pressures on the US economy in the coming months. If inflation rises, the Fed could face criticism if it falls behind the curve over the next year. Balancing economic conditions will be a complex task for the central bank, especially with a new administration coming in, which is likely to lead to increased volatility in interest rate expectations as we move into 2025.

Quieter Calendar Day Ahead – But Markets Remain Volatile

While the macroeconomic calendar is relatively light today, traders are preparing for more market volatility as they digest the Fed’s rate cut and other recent developments. The day’s first sessions are free of major scheduled events, but Canadian dollar traders will be on alert as Canadian employment data is set to release once New York opens. Later, the University of Michigan’s preliminary figures will be published, which are always closely watched. However, recent market updates are expected to continue driving sentiment.

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