It was another strong week for stocks fueled by anticipation of a 50 basis points rate cut by the Federal Open Market Committee. The Fed did deliver on the 50 basis points rate cut that lowered the target range for the Fed Funds to 4.75-5.00%. It was not a unanimous vote, however, as Fed Governor Bowman preferred a 25-basis points rate cut. Still the market was enthused by the cut as well as Fed Chairman Powell’s positive commentary on the economy.
To be clear, Powell defended the larger rate cut as a proper “recalibration” to make sure the labor market and the economy remain in a solid condition and that the intent of the more aggressive move is to make sure they remain there. He also said that the Fed doesn’t feel like it is behind the curve with its policy rate and that the larger cut can be construed as a sign of the Fed’s commitment not to get behind. Meanwhile, the dot-plot shows a median estimate of the fed Funds rate for the end of 2024 at 4.40%. This implies another 50 basis points of rate cuts this year and the dot-plot also indicated another 100 basis points of cuts in 2025.
The S&P 500 gained 1.4% for the week, the Nasdaq +1.5%, and the Russell 2000 rose by 2.1%. Only three S&P 500 sectors closed lower. It was the more defensive sectors that fared poorly with health care (-0.6%) and consumer staples (-1.2%) among the laggards. Meanwhile, the energy (+3.8%), communication services (+3.7%), and financial (+2.4%) sectors were the top performers.