On May 15th, the US stock market hit a historic high, partly due to reports in April that hinted at the possibility of interest rate cuts. Investors were once worried about an economic slowdown, but were buoyed by promises of lower interest rates. This sparked a positive mood among traders, pushing the Dow Jones Industrial Average, S&P 500 and Nasdaq to new record highs.
Nevertheless, not everyone is convinced that a rate cut is imminent. Federal Reserve officials have warned that they intend to keep interest rates high until inflation reaches its 2% target. They believe that premature interest rate cuts could create unpredictable inflationary pressures and hinder economic growth.
However, the S&P 500 has rebounded from its April slump and is up an estimated 12% for the year. The Dow Jones Industrial Average also got a boost, rising 8%, and the Nasdaq Composite Index rose a whopping 15% for the year.
The continuation of US-China trade talks appears to be stimulating market sentiment and supporting the recovery of various indexes. The U.S. Department of Commerce’s April report showed promising signs of easing inflation, with headline inflation hitting 3.4%, the lowest level this year, and core inflation falling to 3.8%.
However, there are some words to be careful of.
US stock market soars on possibility of interest rate cut
Economists caution that it’s too early to tell whether this is a short-term relief or the start of a sustained economic downturn. Tensions in global supply chains could push prices higher again, making vigilance paramount in these key economic indicators over the coming months.
Economist Ian Shepherdson said core CPI inflation is expected to ease gradually. This can be attributed to the stabilization of supply chains, suppressed wage increases, and high corporate profit margins. These factors could create the conditions for economic recovery and allow the industry to move towards pre-pandemic performance levels.
Interest rate traders quickly adjusted their expectations for a rate cut from the US Federal Reserve following the news. CME Group’s FedWatch tool predicts a 52.1% chance of a quarter-point decline in September. This clearly proves that expectations for central bank policy changes are increasing in light of changes in the economy.
Wall Street’s forecasts were also revised upward to reflect the strong domestic economy and improving corporate profits. BMO Capital Markets and Goldman Sachs raised their price targets for the S&P 500 and Dow Jones Industrial Average, respectively, reflecting the strong economic recovery and corporate performance.
In a recent survey by S&P Global’s Investment Managers Index, investors expressed confidence in continued growth, regardless of whether the Federal Reserve keeps interest rates stable through the end of the year. This signals increased investor confidence in the strength and resilience of the market, independent of potential interest rate declines.
