Wall Street Hits Records on Fed Rate Cut Bets

Wall Street’s major indices saw another round of record highs on Tuesday, 9 September, helped by increased speculation around a half-point interest rate cut by the Federal Reserve this month. With a 25 basis points cut a near certainty, political pressure and weak US employment data is spurring talk of 50 basis points instead. Gold also hit another record high.

According to the CME Fedwatch tool, the probability of a ‘double’ 50 bps move is still slim at around 7% but those odds could change this week upon the release of US inflation data for August.

TL;DR

• Major US stock averages all closed at record highs Tuesday, lifted by Fed rate-cut bets and strong gains in UnitedHealth. Oracle shares soared 26% overnight.

• Spot Gold hit a new all-time high of $3,673.95, extending its breakout alongside equity strength.

• Rate Cut Speculation: Markets see a September Fed rate cut as a near certainty; CME FedWatch shows just 7% odds of a larger 50 bp move, with inflation data this week as the swing factor.

US Stock Indices Break Records on Rate Cut Hopes

On Tuesday, all three major US indexes closed at record highs. The S&P 500 rose 0.27%, the Nasdaq Composite gained 0.37%, and the Dow Jones Industrial Average advanced 196 points, or 0.43%, lifted by strong gains in UnitedHealth shares.

At the same time, the price of Gold continued its breakout to all-time highs, hitting a record high of $3,673.95 on Tuesday.

The bullish mood among investors has been helped along by high expectations for reduced interest rates this month, as well as AI-induced earnings growth. Shares of Oracle (ORCL) jumped as much as 26% overnight after the company reported multiple billion-dollar deals for its multi-cloud databases with customers, including tech giants Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT). (Source: CNBC)

Federal Reserve September Rate Cut Almost Certain

There is a general sense among market participants that the surprisingly weak non-farm payrolls report for August sealed the deal on the rate cut that Fed Chair Jerome Powell had already hinted at in his dovish Jackson Hole speech.

Lower interest rates tend to support stock markets since they lower the cost of borrowing for companies and make equities relatively more attractive versus bonds or a savings account. 

There is still a small chance that the Fed will not follow through on the rate cut if US inflation data reported this week deviates significantly from expectations. Much hotter inflation would set up a stagflationary scenario of lower employment but higher inflation, forcing the Fed to choose which one to fight, perhaps resulting in no cut at all. On the other hand, weak inflation could give the Fed room to make a bigger adjustment to support the labour market without the risk of stoking higher future inflation.

On Wednesday, attention turns to the latest producer price index, followed a day later by the closely watched Consumer Price Index (CPI). Together, the reports should provide a clearer picture of US inflation trends.

Conclusion

Wall Street’s record run reflects growing confidence that the Fed will ease policy this month, with investors debating whether it will be a standard 25 bp move or something larger. Gold’s surge to fresh highs underscores the idea that lower rates could weigh on the Dollar. Much now hinges on this week’s inflation data, which could tip the balance of expectations for the Fed’s next step.

*Past performance does not indicate future results. The above are only projections.