Confidence is returning to Wall Street as investors prepare for what are expected to be largely dovish comments from Fed Chair Jerome Powell at the U.S. central bank’s annual economic symposium in Jackson Hole, Wyoming at the end of the week.
Markets recorded their best week of the year last week, with major inflows into the S&P 500 index in particular [see below] as recent positive data relieved worries over the prospect of a recession.
Powell will likely use the Friday morning address to frame the Fed’s strategy for reducing rates, according to Evercore ISI analysts, in a note, highlighting that the central bank is prepared to implement significant cuts if needed.
“We think Powell’s take will be reassuring and consistent with a soft baseline of a string of 25s, but he will convey the Fed is open to 50s and the bar for this is not very high,” said Evercore ISI.
The investment bank anticipates that Powell will affirm the Fed’s confidence in inflation trending back towards the 2% target, signaling that rate reductions could commence as soon as September.
However, “we do not expect a hard steer as to whether the first move will be a 25bp or 50bp cut,” Evercore ISI states. Instead, Powell is expected to suggest that the decision will hinge on the upcoming labor data.
The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July.
U.S. stock futures edged higher Tuesday, continuing the recent winning streak amid confidence that the Federal Reserve will shortly start cutting interest rates, helping activity in the world’s largest economy.
By 04:00 ET (08:00 GMT), the Dow futures contract was 40 points, or 0.1%, higher, S&P 500 futures climbed 6 points, or 0.1%, and Nasdaq 100 futures rose by 45 points, or 0.2%.
The benchmark Wall Street indices closed higher Monday, with the S&P 500 advancing nearly 1%, while the NASDAQ Composite added 1.4%. Both indexes posted their eighth straight positive session, a first for the S&P 500 since November 2023, and the longest winning stretch for the Nasdaq since December 2023. The Dow Jones Industrial Average gained 0.6%.
The economic data slate is largely empty Tuesday, and investors will continue to focus on the minutes from the Federal Reserve’s most recent meeting, on Wednesday, and then Friday’s Jackson Hole speech by Jerome Powell.
Earnings are due from home improvement retailer Lowe’s (NYSE:LOW), while cybersecurity company Palo Alto Networks (NASDAQ:PANW) stock rose almost 2% after posting top and bottom line beats for the fiscal fourth quarter.
The battle to take over Paramount Global (NASDAQ:PARA) has heated up with media executive Edgar Bronfman Jr. submitting a roughly $4.3 billion bid to acquire National Amusements, the company that owns a controlling stake in the media giant.
This move threatens to undo a planned acquisition by David Ellison, the founder and CEO of Skydance Media.
Bronfman’s offer includes $2.4 billion in debt and equity for National Amusements, according to a Reuters report, and would also contribute $1.5 billion to Paramount’s balance sheet, which could be used to pay down debt.
Skydance reached an agreement last month to buy out the Redstone family’s controlling stake in the home of Paramount Pictures, the CBS broadcast network and MTV, and subsequently merge into the larger publicly traded company.
That agreement contained a 45-day “go-shop period” that allowed Paramount to solicit and evaluate other offers, but if Paramount chooses another suitor, it must pay Skydance a $400 million break-up fee.
Investor sentiment has shifted markedly over the past week, resulting in substantial inflows into the S&P 500 index, with positive economic data appearing to have underpinned this renewed investor confidence.
Both the U.S. PPI and CPI releases reassured investors of the easing inflationary environment, contributing to a more optimistic economic outlook and reducing fears of a protracted inflationary period.
“Net positioning rose across US indexes, with the S&P seeing distinctively larger and consistent new risk flows throughout the week. Notional positioning rose by almost $18bn, with the vast majority ($16bn+) coming from new longs,” analysts at Citi said.
“Nasdaq and Russell position flows followed a similar rising trend, but the magnitude of flows was much smaller,” they added.
This influx of capital has been accompanied by a marked reduction in short positions, as the rally pushed all short positions into loss territory. However, Citi notes that the risks associated with these short positions are mitigated by the relatively smaller size of these positions.
The Nasdaq, in particular, had been under pressure from long position losses, but these losses have now eased significantly, reducing pressure on investors and improving the overall profit setup for the index.
Crude prices fell Tuesday on easing geopolitical risks after progress over a potential ceasefire deal in Gaza.
By 04:00 ET, the U.S. crude futures (WTI) dropped 1% to $72.94 a barrel, while the Brent contract fell 1% to $76.88 a barrel.
U.S. Secretary of State Antony Blinken said on Monday that Israeli Prime Minister Benjamin Netanyahu had accepted a “bridging proposal” presented by Washington to tackle disagreements blocking a ceasefire deal in Gaza, and urged Hamas to do the same.
This points to an increased likelihood of a ceasefire deal, which would see market participants pricing out the risks of an escalation across the wider region, potentially hitting supply from this oil-rich region.
Concerns over China’s demand outlook continue to weigh, with the decision of the People’s Bank to keep its benchmark loan prime rate unchanged disappointing some traders given the country’s recent weak economic data.
In the United States, the American Petroleum Institute will release its estimate of U.S. crude stockpiles later in the session.
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