Market Moves: Anticipating Fed Rate Cuts Amid Cooling Inflation
The U.S. economic landscape remains in the spotlight as investors eagerly await Thursday’s data, which could further clarify the Federal Reserve’s upcoming decisions on interest rates. Following mild U.S. inflation readings earlier this week, the market is largely confident that the Fed will initiate its first interest rate cut in over four years come September. However, the debate over the size of the cut remains intense—will it be a standard 25 basis points (bps) reduction or a more aggressive 50 bps cut?
The likelihood of a 50 bps cut dropped to 36%, down from 50% just a day prior, after Wednesday’s Consumer Price Index (CPI) report. The CPI showed an annual inflation rate of 2.9%, the lowest since 2021, cooling concerns and lowering expectations for a large cut. Earlier this month, those odds had soared to 71% following weaker-than-expected U.S. payrolls data.
Thursday’s economic releases include the weekly jobless claims and the Philadelphia Fed manufacturing index for August, but all eyes will be on July’s retail sales figures. As consumer spending accounts for roughly two-thirds of U.S. economic growth, this report is crucial. Analysts expect a modest monthly growth of 0.4%, a slight improvement from June’s flat reading.
With optimism growing around the Fed’s potential rate cuts, U.S. stock futures are up. By 04:20 ET, Dow futures were 100 points higher, S&P 500 futures rose by 8 points, and Nasdaq 100 futures gained 52 points. This follows a strong Wednesday session where the Dow climbed over 240 points, the S&P 500 gained 0.4%, and the Nasdaq posted modest gains.
In the corporate sector, retail giant Walmart (NYSE: WMT) is set to release its earnings, providing more insight into the strength of consumer spending. Meanwhile, Ulta Beauty (NASDAQ: ULTA) soared in premarket trading after Warren Buffett’s Berkshire Hathaway revealed a new stake in the company. Nike (NYSE: NKE) also gained after Bill Ackman’s Pershing Square disclosed a position in the retailer.
Corporate Spotlight: Cisco’s Restructuring Plan Boosts Stock
Cisco Systems (NASDAQ: CSCO) saw its stock rise in extended trading Wednesday after announcing better-than-expected Q4 earnings and a major restructuring plan. The networking giant posted $13.64 billion in revenue, beating estimates, and announced plans to cut 7% of its global workforce. The company expects a pretax charge of up to $1 billion for severance and other termination benefits, with most of the charges to be recognized in Q1 2025. Cisco’s restructuring comes as it aims to bolster profitability and streamline operations in a competitive tech landscape.
Global Update: UK Economy and Crude Prices
Across the pond, the U.K. economy continues its slow rebound, growing by 0.6% in Q2 2024, following 0.7% growth in Q1. However, economic activity was flat in June, with industrial and manufacturing production taking a hit. Britain’s post-COVID recovery remains sluggish, with overall economic expansion at just 2.3% since Q4 2019.
Meanwhile, crude prices are up amid optimism that U.S. interest rate cuts could stimulate economic activity, boosting oil demand. However, gains have been tempered by an unexpected rise in U.S. stockpiles, with crude oil inventories increasing by 1.4 million barrels in the week ending August 9.
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