Street-level assurance escalates – effortless profits
The most recent Fed meeting minutes and updated data on the U.S. labor market are being interpreted on Wall Street as indicators pointing towards an upcoming interest rate increase. As a result, U.S. stocks are experiencing a minor improvement, moving slightly up. The day's biggest winners and losers hail from the retail sector.
Post-release of the Fed minutes, U.S. investors exhibited a hint of optimism. Although the Dow Jones Industrial Average of premium stocks ended the trading session on Wednesday nearly unchanged at 40,890 points, the tech-focused Nasdaq rose by 0.6% to 17,918, and the all-encompassing S&P 500 climbed by 0.4% to 5,620.
Investors eagerly awaited the minutes of the Federal Open Market Committee (FOMC) meeting, scheduled for 20:00 CEST. Based on the July discussions on interest rates, some Fed members showed a willingness to consider a reduction at the time. However, as the next meeting in September approaches, an "overwhelming majority" of Fed members think that a rate reduction might be necessary.
If the Fed fails to guarantee a rate cut in September, the market might experience a rapid sell-off, predicted Phil Blancato, wealth manager for Ladenburg Thalmann, prior to the release. Such a situation would depend on the continued meeting of expectations for further rate cuts.
Supporters of a more substantial rate hike received support from the U.S. Labor Department, which announced a revision of its total employment estimate for April 2023 to March 2024, reducing it by 818,000 jobs or 0.5%. The Federation views a cooling labor market as essential for achieving its 2% inflation target sustainably, which they believe has recently weakened, sparking worries about a slowdown. Investors are concerned about the possibility of bankers having tightened their policies excessively.
Gold's Rally Comes to a Halt
Nevertheless, only a minority of market participants now anticipate a 0.5% rate cut by the Fed. Despite strong US economic data, the picture beyond the expected easing in September remains unclear. Investors turn to the international central bank conference in Jackson Hole, Wyoming, starting on Thursday, for further insights about the Fed's future actions. Fed Chair Jerome Powell's speech on Friday will be closely observed. Experts are skeptical, with Jochen Stanzl, chief analyst at broker CMC Markets, stating, "Powell is likely to continue emphasizing data-dependent policy, and there's still a jobs report between his speech in Jackson Hole and the next Fed meeting. Uncertainty regarding monetary policy is likely to persist beyond Friday."
High Gold Prices and Boosted Government Bond Purchases
Market uncertainty was palpable in the high gold prices. Despite experiencing a slight dip mid-week, dropping to $2,511 per troy ounce, it remained close to the all-time high of $2,513.74 hit on Tuesday. Additionally, investors increased their purchases of government bonds, causing yields to drop. Although the yields on 10-year US bonds and German bonds initially remained stable, they were near their seven-month lows of 3.780% and 2.160%.
Target on the Rise
Investors found interest in U.S. retail stocks, including those of discount retailer Target, which surged by 11%. The company attracted customers with affordable pricing and surpassed expectations in the second quarter. Shares of automaker Ford also rose by 1.5%, as the company revises its electric vehicle plans due to substantial losses in the competitive market. Shares of hotel operator Hyatt also gained 1.5% as the company plans to acquire the brands and subsidiaries of competitor Standard International for a base price of $150 million.
On the other hand, Macy's stock plummeted by over 12% as the company grapples with the reluctance of lower-income consumers to make purchases and has revised its 2024 goals downward. Shares of Chinese e-commerce giant JD.Com also fell by 4% following reports of Walmart selling its stake in the company.
Learn more about today's market activity here.
The Fed's potential interest rate increase, as suggested by the recent meeting minutes and labor market data, has intrigued Wall Street investors, influencing the minor upward movement of U.S. stocks. Furthermore, the anticipation of Fed Chair Jerome Powell's speech at the international central bank conference in Jackson Hole, Wyoming, is escalating as investors seek clarity about the Fed's future actions.
In light of the Fed's stance on interest rates and labor market data, gold prices have shown volatility, with the precious metal remaining close to its all-time high following a slight dip mid-week. Concurrently, investors have increasingly adopted government bond purchasing due to the market uncertainty.
