DFG Navigator Archives | September 2024

Your Capital Markets Snapshot: Federal Reserve's Cut Interest Rates

Last week, the Federal Reserve's cut interest rates by 50 basis points (bps) instead of the typical 25 bps, bringing the Federal Funds Rate to a range of 4.75%-5.00%. Chairman Powell explained they believed inflation will continue to decrease towards their 2% target and signs of a softening labor market supported their decision to begin cutting rates. While they explained more rate cuts would follow, they would not making timing/size commitments and explained they would closely monitor incoming data as they work to reduce their policy rate to a more neutral level. This decision was well-received by the equity markets, leading to new all-time highs for the S&P 500 and Dow Jones Industrial Average. The NASDAQ also saw a substantial increase, jumping 2.5% on Thursday following the Fed's announcement, but is still shy of its previous ATH.

Your Capital Markets Snapshot: Capital Markets Experienced Increased Volatility

Last week, the capital markets experienced increased volatility due to concerns about a slowing economy and persistent inflation. Despite these challenges, stocks have shown strong gains and are near record highs. The latest inflation data revealed a month-over-month increase in core CPI, indicating that the fight against inflation is not yet over. However, the broader trend shows that inflation is on a downtrend, with core CPI levels returning to those seen in early 2021. The Federal Reserve is expected to start an extended phase of rate cuts at its upcoming meeting, which has brightened the outlook for monetary policy. Investors remain focused on inflation and labor market data and their implications for future Fed interest-rate moves.

Your Capital Markets Snapshot: U.S. Labor Market Was a Key Focus

Last week, the U.S. labor market was a key focus for investors, with the August nonfarm jobs report confirming signs of a weakening labor market. The unemployment rate dropped from 4.3% to 4.2%, but new jobs added showed a clear softening trend. Markets reacted to the soft jobs report with a continued sell-off, leading to a 4% decline in the S&P 500 from recent highs. The Federal Reserve's potential interest rate cuts became a focal point, with the probability of a 0.50% rate cut increasing due to the softening economic data. Treasury yields moved lower, and the yield curve un-inverted, reflecting the weaker labor market data and potential Fed rate cuts. Crude oil prices hit new lows for the year, driven by fears of a demand slowdown globally, particularly in China. Overall, markets have taken on a more defensive posture, with sectors like consumer staples and utilities outperforming amid economic uncertainty.

Your Capital Markets Snapshot: Major Indices Were Mostly Flat

Last week, the major indices were mostly flat or slightly down. Despite the volatility shock to start the month, all three indices managed to close August with slight positive gains. Economic data continues to support the potential of the Federal Reserve achieving a soft landing; last week, we saw an upward revision of Q2 GDP growth, the PCE report indicated moderating inflation, and initial unemployment claims came in below estimates. Following their recent interest rate cut, Eurozone countries continue to see inflation decrease as they reported inflation hitting its lowest level in nearly 3 years. Despite all this positive news, the S&P 500 ended the week just shy of a new all-time high while gold continued to push higher, which could be a sign of continued uncertainty in the short-term.

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