S&P 500 Surges to New High on Fed Rate Cut Hopes and Tech Stock Gains
Rate Cut Expectations Support Market Optimism
The market’s resilience comes during a historically challenging period for equities, as September has typically been the worst-performing month for the S&P 500, according to FactSet. Despite this seasonal trend, the index’s gains have been propelled by expectations that the Federal Reserve will announce its first rate cut since it began aggressively hiking rates in March 2022. Investors are now anticipating a significant reduction in interest rates, with many pricing in a 50 basis point cut.
This sentiment has been fueled by improved economic indicators, including retail sales data, which rose 0.1% in August despite predictions of a decline. Traders are also banking on the Fed’s decision to support continued growth, with Wall Street split on the scale of the cut. According to the CME Group’s FedWatch tool, there is now a 59% chance of a half-point reduction, up from a 47% probability just last week.
Potential Market Risks Amid Fed Uncertainty
Despite the optimism, some analysts have voiced concerns about the potential impact of a larger rate cut. A 50 basis point cut, while supportive of equity markets in the short term, may signal underlying weaknesses in the U.S. economy. This view is particularly focused on the labor market, where a rate cut of this magnitude could imply a more negative outlook than previously expected.
Analysts such as Adam Turnquist from LPL Financial warn that a larger-than-expected cut might reflect the Fed’s growing concerns about the health of the labor market, which could introduce new volatility into the market.