NEW YORK, Sept 19 (Askume) – U.S. stocks rose after an initial tepid reaction to the Federal Reserve’s first interest rate cut in four years, as uncertainty eased and investors gauged the impact of monetary policy easing.
The S&P 500 rose 1.9% on Thursday, hitting a new intraday high. The rebound was in stark contrast to the previous day, when the benchmark index closed down 0.3% after the Federal Reserve cut interest rates by 50 basis points . Treasury yields, which move inversely to bond prices, have been rising.
The Fed meeting is seen as a potentially pivotal event for markets, with rates beginning to fluctuate in the hours before the meeting as traders place bets on how big an initial rate cut will be.
Michael Purves, CEO of Tolbachan Capital Advisors, said investors can turn their focus to corporate profit growth, which is expected to remain solid this year following the first interest rate cut and a better sense of the future of the Federal Reserve’s monetary policy.
“If the stock market goes up, it’s because the Fed meeting is over,” Parves said.
Ed Yardeni, founder of Yardeni Research, said that as monetary policy becomes less restrictive and investors focus on better prospects for economic easing, the Fed will be able to reduce inflation without seriously harming economic growth.
“Now that the Fed is stimulating the economy, the rush to make tough decisions should end,” Yardeni wrote in a note Thursday morning.
Yardeni said lower rates could benefit smaller, more leveraged companies that rely on cheap debt and economically sensitive value stocks. The rally that has lifted the S&P 500 18.5% this year through Wednesday could outpace gains in large-cap technology stocks, he said.
The small-cap Russell 2000 index (.RUT) rose 1.9% on Thursday, after ending roughly flat in the previous session .
Nomura strategist Charlie McElligott said in a note that stocks could find support in the near term as the shift from a hard landing to a soft landing allows defensively positioned investors to “play catch-up.” “The stock market is rising. .
Historically, stocks have responded well to lower interest rates as long as a recession is avoided, according to data from Keith Lerner, co-chief investment officer at Truist Advisory Services. Four of the six Fed easing cycles since 1989 have seen the S&P 500 rise a year after the first rate cut, Lerner said.
However, the possibility of volatility cannot be ruled out in the short term and the Federal Reserve’s decision will impact the market.
Commenting on the foreign exchange market, Karl Schmotta, chief market strategist at payments company Corpay, said: “The next few hours could be dangerous… as expectations of rising interest rates in other economies will trigger sudden major price movements among traders.” Volatility may be expected.
The dollar was little changed against all currencies on Thursday and fell to its lowest level in nearly a year.
Investors are also eagerly awaiting Friday, when quarterly trading on stock options, index options and futures – totaling about $5.1 trillion, according to SpotGamma – will see traders increase their positions and heighten the risk of stock market volatility.
Silent response
Stock options on the S&P 500 (.SPX) fell about 1.1% on Wednesday, according to data from options analysis service ORATS. But by Wednesday’s close, the index had ended a seven-day losing streak, and closed down 0.29%, reversing an earlier gain.
Sonu Varghese, global macro strategist at Carson Group, said one of the reasons for the market’s slow reaction to year-end is the Fed’s decision on the direction of asset prices in the past few days.
As of Tuesday, the Russell 2000 index had risen 5% over the past five trading days, while the dollar had fallen 0.7% on expectations that the Federal Reserve would begin a long-awaited interest rate cutting cycle.
“It’s a very silly saying, ‘buy the rumor, sell the news,’ but it happens,” said Matt Dyczok, head of fixed-income strategy at Merrill Lynch and Bank of America Private Bank.
Treasury yields, which were pushed higher by the drop in prices, continued to rise on Thursday, with the benchmark 10-year yield rising to 3.75% and the two-year yield rising to 3.62%.
The move is significant as weekly employment data shows continued strength in the labor market.
After the Fed meeting, “attention will once again turn to upcoming data to provide further clarity on the macro situation,” rate strategists at BMO Capital Markets said in a report.
