Powell Speech Signaling Rate Cuts Contributes To Rally On Wall Street

(RTTNews) - Following the pullback seen over the course of the previous session, stocks showed a strong move back to the upside during trading on Friday. The major averages all moved sharply higher, with the Dow and the S&P 500 reaching their best closing levels since reaching record highs in mid-July.

The major averages gave back ground after an early rally but showed another notable advance late in the session. The Dow jumped 462.30 points or 1.1 percent to 41,175.08, the Nasdaq surged 258.44 points or 1.5 percent to 17,877.79 and the S&P shot up 63.97 points or 1.2 percent to 5,634.61.

With the strong upward move on the day, the major averages all closed sharply higher for the week. The Dow shot up by 1.3 percent, the Nasdaq jumped by 1.4 percent and the S&P 500 surged by 1.5 percent.

The rebound on Wall Street came as highly anticipated remarks by Federal Reserve Chair Jerome Powell indicated the central bank is prepared to begin lowering interest rates.

"The time has come for policy to adjust," Powell said at the Jackson Hole Economic Symposium, although he noted the "timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

Powell's determination that it is time for the Fed to begin cutting rates comes as his "confidence has grown that inflation is on a sustainable path back to 2 percent."

Fed officials have repeatedly said they need "greater confidence" inflation is moving sustainably toward the central bank's 2 percent target before they would consider cutting rates.

Powell said inflation is now much closer to the Fed's objective, with consumer prices rising 2.5 percent year-over-year in July, and noted progress toward 2 percent has resumed after a pause earlier this year.

The remarks by Powell came as recent inflation data has increased confidence the Fed will cut interest rates at its next monetary policy meeting in September.

"Chair Powell just rang the bell to start rate cuts," said MBA SVP and Chief Economist Mike Fratantoni. "He was careful to note that incoming data will inform the pace of cuts, but a cut is coming in September, and this cut will be the first in a series that should bring the federal funds target down significantly over the next 18 months."

According to CME Group's FedWatch Tool, there is a 65.5 percent chance of a quarter point rate cut at the September 17-18 meeting and a 34.5 percent chance of a half point rate cut.

The minutes of the Fed's late July meeting, released on Wednesday, revealed that the "vast majority" of participants believed it would "likely be appropriate" to lower rates at the next meeting if inflation data continued to come in "about as expected."

In U.S. economic news, a report released by the Commerce Department showed a substantial increase by new home sales in the U.S. in the month of July.

The Commerce Department said new home sales spiked by 10.6 percent to an annual rate of 739,000 in July after rising by 0.3 percent to an upwardly revised rate of 668,000 in June.

Economists had expected new home sales to jump by 2.1 percent to an annual rate of 630,000 from the 617,000 originally reported for the previous month.

With the much bigger than expected surge, new home sales reached their highest annual rate since hitting 741,000 in May 2023.

Sector News

Airline stocks showed a substantial move to the upside on the day, with the NYSE Arca Airline Index soaring by 3.7 percent.

Considerable strength was also visible among housing stocks, as reflected by the 3.7 percent spike by the Philadelphia Housing Sector Index.

The rally by housing stocks reflected optimism about lower interest rates and a positive reaction to the spike by new home sales.

Oil service stocks also saw significant strength as the price of the crude oil continued to recover from a recent sell-off, driving the Philadelphia Oil Service Index up by 3.1 percent.

Networking, semiconductor and telecom stocks also saw significant strength, moving notably higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index rose by 0.4 percent, while Hong Kong's Hang Seng Index dipped by 0.2 percent.

Meanwhile, the major European markets all moved higher on the day. While the U.K.'s FTSE 100 Index climbed by 0.5 percent, while the French CAC 40 Index and the German DAX Index advanced by 0.7 percent and 0.8 percent, respectively.

In the bond market, treasuries moved back to the upside in response to Powell's speech. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 5.5 basis points to 3.807 percent.

Looking Ahead

Reports on durable goods orders and consumer confidence may attract attention early next week, while a report on personal income and spending is likely to be in focus later in the week, as it includes readings on inflation preferred by the Federal Reserve.