US stocks finished in the green on Monday, as investors digested Powell’s comments.
The S&P 500 closed at record high adding 0.4% and the Nasdaq also gained 0.4%, while the Dow Jones closed marginally higher.
Also, traders brace for key economic data due this week, including the jobs report, JOLTS and ISM manufacturing and services PMIs.
The odds for a 50bps rate cut in November currently stand at 35%, well below levels above 50% in the previous week.
Materials and consumer discretionary led the losses.
We heard from Jerome Powell for the first time since the September 18th post-FOMC press conference.
This comes at the end of a month for stocks that started down 5% and ended up over 2%. The swing was largely driven by the expectations and outcome surrounding the September Fed meeting.
In that September press conference he told us exactly what he wanted to signal to markets. He wanted the “strong move” of the 50 basis point cut, to be “a sign of [their] commitment not to get behind the curve.”
But the cracks in the labour market clearly had the Fed worried that maybe they had indeed fallen behind (waited too long). With that, Powell made it clear that a negative surprise in the labour market was the condition to cut faster.
So, speed and depth of rate cuts from here is all about the employment situation…we get the September jobs report on Friday.
Let's talk about what Powell said. He was in Nashville at the NABE (National Association for Business Economics) where he delivered some prepared remarks and did some Q&A.
Anything new?
He was clearly more confident on the economy.
Did it have anything to do with the recent stimulus measures coming out of China, and the related boost it will give to the global economy? Probably, in part. But there was no mention of it. What he did discuss, intentionally, was the revisions of economic growth published last Thursday by the BEA (Bureau of Economic Analysis).
This report updated economic output data from the first quarter of 2019 to the first quarter of 2024. It was all revised UP.
These revisions add another $650 billion of inflation-adjusted dollars to total output over the five year period.
The report also revised personal incomes up, consumer spending up and with a higher personal savings rate — and estimated higher productivity.
From this report, the Fed Chair said some "downside risks" to the economy they were concerned about have been "removed."