Financial markets look beyond the here-and-now. Stock and bond markets seem to be predominately valued according to future expectations, not just what is happening today. That is one of their most interesting qualities, in our view.
It is important to keep that trait in mind as context. That quality adds a wrinkle to interpreting economic and financial news. It is often a matter of projecting six or twelve months ahead in the economic landscape, which of course is uncertain. Yet it is where market participants tilt their thinking.
In large part due to that forward-looking attribute, today we’re seeing the U.S. stock market coming off a great week. Equities rebounded from a recent “gut check” low on August 5. The S&P 500′s close on Friday saw the index less than 1% away from its record high set in mid-July. Helping the market was Federal Reserve Chair Jerome Powell’s indication of an all-but-certain interest rate cut in September.
Wall Street has been anxiously awaiting a rate cut, especially in light of some worrying economic data that sparked a sell-off at the beginning of August and worried investors that elevated borrowing costs could damage the U.S. economy. To be clear, Powell did not indicate when, or by how much, interest rates would be potentially lowered. Nonetheless, traders remain unanimous in their forecast for a rate cut in September, per the CME Group’s FedWatch Tool.
Like the financial markets, we will keep an eye towards the future. Have a good week and a nice Labor Day next week!