Stocks surge after Powell signals rate cuts ahead
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Illustration: Megan Robinson/Axios
Investors got what they were betting on Friday —but perhaps not as much as they secretly hoped—as Fed chair Jerome Powell indicated the central bank's policymakers were open to cutting interest rates at their meeting next month.
Why it matters: Hopes for lower rates should keep the market's summertime rally going, after weakness in the jobs market and worries about AI spending slowed the bulls.
Driving the news: Powell told the Jackson Hole conference that "the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," indicating that rates could be cut as soon as September.
By the numbers: The S&P 500 was up nearly 1.5% at 10:40 am, with only seven stocks in the index lower. A risk-on rally hit multiple corners of the market:
- Bitcoin rose above $115,000.
- The Russell 2000 rose by 2.8%.
- The Magnificent 7 ETF rose by over 1.5%.
- Tesla stock popped 4%.
Between the lines: "It's clear the Fed has enough data under its belt to justify a September cut," said David Laut, chief investment officer at Abound Financial, in a note. "We expect the market's bullish trend to continue over the short-term."
- "We would not be surprised to see a 5-10% correction in the S&P 500 sometime between September and October, in-line with historical trends, before rallying to 6,500 through 7,000 by the end of the year."
Be smart: As of September, it will have been nine months since the Federal Reserve's last rate cut. A pause in rate-cutting can be good for stocks.
- Historically, when the Fed has waited 5 to 12 months between rate cuts, stocks were higher a year later 10 of 11 times, according to Ryan Detrick, chief market strategist at Carson Group.
This is a developing story.
