Equities Rally in Anticipation of FOMC Decision

Equities Rally in Anticipation of FOMC Decision

Equity markets rallied last week recovering from the previous week’s declines as markets prepare for the upcoming Fed decision. Global equities (represented by the MSCI All Country World Index) were up 3.07% while domestic stocks (represented by the S&P 500 Index) were up 4.06%.

Consumer Price Index (CPI)

A light week for economic data releases was headlined by a reading of the Consumer Price Index (CPI). The report showed that prices rose at an annual rate of 2.5% in August, the lowest level since February 2021. Core CPI (excluding food and energy prices) ticked up 0.3% month-over-month, higher than expected. Equities initially reacted pessimistically to the core inflation reading as the slightly elevated print dampened prospects for a 0.50% rate cut at this week’s FOMC meeting. However, markets turned around and the implied probability of a 0.50% rate cut increased back to 50%.

Source: BLS

US Consumer Sentiment

US consumer sentiment rose and continued its upward momentum in August, marking the highest reading in four months. A more tamed consumer expectation around inflation and an improved view on the economy pushed the index higher.

Looking Forward

This week investors are focused on Wednesday’s Federal Reserve rate decision. Markets fully anticipate the start of a rate-cutting cycle as the Fed Funds Rate has remained unchanged at multi-decade highs for eight consecutive FOMC meetings. There is still uncertainty around the magnitude of the initial rate cut being 0.25% or 0.50%.

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.