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Bulls are firmly in control this morning as the market prices in the “Goldilocks” landing scenario following the major rate cut announcement yesterday, bolstering prices across stock and crypto markets.
What’s the Scoop?
- Fed Cuts: Yesterday, America’s Federal Reserve announced a 50 bps (0.5%) decrease to its benchmark short-term policy rate in the central bank’s first instance of monetary easing during the post-Covid era.
- Volatile Regime: While markets initially rallied on confirmation of the telegraphed Fed cuts, they gave back the gains headed into the U.S. close and finished out the day red. Although the bullish impulse from Fed cuts didn’t transpire until after the close, the broad market S&P 500 opened 1.5% higher today, the index’s strongest overnight gain since 2022 and its largest gap up opening to new all-time highs in at least 35 years.
- Achieving Goldilocks: High interest rates were tough on the economy, but they were seen as necessary to control the big inflation that hit in 2022. Now that inflation has slowed down a lot in recent months, the Fed can start easing up on its monetary policies. Despite some softening in the labor market, numbers aren't pointing to imminent disaster, and global central bankers remain supremely confident they can keep unemployment from rising too much without causing more inflation through carefully calculated interest rate cuts.
Bankless Take:
The best mix of conditions seems to be coming together, boosting economic optimism and giving the green light for bulls to push markets to new all-time highs. While investors will see tanking inflation data as bullish and shrug off deteriorating labor conditions in the weeks ahead thanks to renewed confidence in the Fed Put, an unexpected turn for the worse will swiftly give way to serious recession concerns.
“This is the definition of a soft landing.”
— Schwab Network (@SchwabNetwork) September 19, 2024
With $SPX set to achieve its biggest gap open since 2008, @KevinHincksCS sets the table for what looks like a “monster” day in the market:
