Stocks Rally For The Week On Fed Rate-Cut Optimism: Markets Wrap

US stocks gained for a third consecutive week — despite languishing on Friday — as investors were repeatedly reassured that the economy is cooling without falling off a cliff.

Treasuries rallied as data cemented bets of further interest-rate cuts by the Federal Reserve. Yields are lower across the curve, with the 10-year rate hovering around 3.75%. The Bloomberg Dollar Spot Index declined for a fourth week.

The Fed’s preferred gauge of underlying US inflation rose mildly in August, as did inflation-adjusted consumer spending. Those figures confirmed what traders already knew about the health of economy after parsing a slew of data earlier this week. A read on US consumer sentiment on Friday matched the optimism. 

Commentary from Fed officials in the last five days did little to sway existing perceptions on the central bank’s trajectory. On Friday, St. Louis Fed President Alberto Musalem said he favors ‘gradually’ lowering rates after a big cut last week. Fed Governor Michelle Bowman, meanwhile, restated her view that the US economy is still strong. On Thursday, Fed Chair Jerome Powell didn’t offer details on the economic outlook or path for monetary policy during a pre-recorded speech.

Other catalysts this week included daily stimulus announcements from China that kept sentiment largely upbeat. Several central banks across the globe — in Switzerland, Mexico, Hungary and Czech Republic — also lowered interest rates this week. 

Despite an overall sanguine week, the S&P 500 and the Nasdaq 100 ended Friday’s session lower, weighed down by Nvidia Corp. Its shares fell on news that China is urging local companies to stay away from its chips. 

Even after a flood of data this week, markets are still pricing in a split chance between a quarter point and half point cut at the Fed’s next meeting. Economists now see inflation reaching the central bank’s 2% target next year. 

“Add today’s PCE price index to the list of economic data landing in a sweet spot,” said Chris Larkin, managing director, trading and investing, at E*Trade. “Inflation continues to keep its head down, and while economic growth may be slowing, there’s no indication it’s falling off a cliff.”

Damian McIntyre, a portfolio manager at Federated Hermes, said that while a soft landing for the economy is never guaranteed, investors should find solace in the strength of recent economic data.

“Today’s inflation print confirms what Powell told us last week: inflation is falling, the consumer is strong, and the labor market remains resilient,” he said.

A key driver of markets later next week will be jobs data, which will provide further clues on the state of the labor market. 

Elsewhere, China’s CSI 300 Index concluded its best week since 2008. In Europe, stocks closed at a fresh all-time high on Friday, capping off their best week in more than four months. 

In commodities, oil declined for the week. On Friday, however, its prices jumped after Israel said its military struck Hezbollah’s main headquarters in southern Beirut, ramping up tensions in the Middle East.