US Stocks Surge Higher Over the Weekend – Dow up 0.7%
US stock markets pushed higher again on Friday as expectations for a 50-basis-point cut from the Fed this week increased. The Dow rose 0.72%, the S&P 500 climbed 0.54%, and the tech-heavy Nasdaq jumped another 0.65%. The S&P is now just 1% off all-time highs heading into the crucial week ahead. US Treasury yields pulled back in line with these expectations, with the 2-year dropping 5.9 basis points to 3.580% and the benchmark 10-year falling 2.1 basis points to 3.659%. The dollar drifted lower, with the index now sitting near a 9-month low as the fresh week approaches. Oil prices fell in late trading as US output in the Gulf of Mexico resumed following Hurricane Francine, with Brent down 0.5% to $71.61 a barrel and WTI off 0.5% to $68.65 a barrel. Gold stood out again, powering to fresh record highs for the second day in a row, adding another 0.8% to close at $2,576 after hitting a high of $2,585.99.
Fed Rate Cut Expectations Surge
Futures markets are now pricing in a 47% chance of a larger cut from the FOMC this week, up significantly from the 28% chance priced in on Thursday. This move was supported by hawkish comments from former New York Fed President Bill Dudley on Friday, though not by recent data updates. Some investors are questioning the speed and size of market adjustments, as both headline CPI and PPI numbers came in slightly higher than expected this week. With US stock indices still powering ahead, and the S&P sitting just 1% off all-time highs, there is concern the market may have overreacted. If expectations remain near these levels heading into Wednesday’s Fed meeting, a 25-basis-point cut could lead to significant market corrections.
Calm Before the Market Storm
The macroeconomic calendar looks sparse tomorrow, ahead of what could be one of the most pivotal weeks in the trading year. Traders are expecting positive moves at the Asian open on Monday, following another strong day on Wall Street on Friday. Liquidity could be limited early in the day, as both China and Japan enjoy long weekends. While there is little of note on the calendar during the Asian and European sessions, traders are anticipating increased volatility due to the major updates scheduled for later in the week.
The New York open will see the release of the Empire State Manufacturing Index, with the market pricing in a 4.1 decrease. However, expect more volatility from any updates on Fed rate cut expectations.
