Fed Comments Boost Sentiment as Equities Rise

Fed Comments Boost Sentiment as Equities Rise

Equity markets rose last week as comments from the Federal Reserve provided more certainty to investors that a rate cut will occur in September. Global equities (represented by the MSCI All Country World Index) were up 1.73%, while domestic stocks (represented by the S&P 500 Index) were up 1.47%.

Powell’s Speech

During Fed Chair Powell’s Friday speech at the Federal Reserve’s annual Jackson Hole economic policy symposium, he stated that “the time has come for policy to adjust” as inflation has continued to moderate. Powell also noted that the FOMC does “not seek or welcome” further cooling to the labor market as investors have also focused heavily on the latest month’s weaker-than-expected jobs report.

July Fed Policy Meeting

Earlier in the week, the Fed’s minutes from their July policy meeting were released, which also boosted sentiment. While all participants agreed to keep the Fed Funds rate unchanged in July, “several” participants believed there was a “plausible case” for a rate cut in July following data supporting progress on inflation and increased unemployment. The “vast majority” see a rate cut occurring at the next meeting “if the data continued to come in about as expected”. According to the CME FedWatch Tool, futures prices are fully pricing in a rate cut at the September FOMC meeting, with a 36% probability of the cut being 0.50%.

Source: CME FedWatch

US Mortgage Rates

With US mortgage rates falling recently, home sales ticked up in July following four consecutive months of declines. The National Association of Realtors reported US existing home sales rose 1.3% month-over-month. The median sale price dropped slightly. However, it still sits near record prices reached in June.

Looking Forward

This week the second estimate of Q2 GDP will be released Thursday followed by the Personal Consumption Expenditure (PCE) price index on Friday. The first estimate of Q2 GDP showed a 2.8% annual growth rate, increasing from Q1’s 1.4% pace. The core PCE index, the Fed’s preferred inflation gauge, came in at an annual rate of 2.6% in June, unchanged from the month prior and the lowest level since 2021.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.