Fed’s Bold Rate Cut Fuels Market Rally

The Federal Reserve’s recent decision to cut interest rates by half a percentage point has stirred up a lot of activity in the markets, pushing the S&P 500 to new record highs and giving a boost to global stocks. Investors are feeling hopeful that this move will help steer the US economy toward a smoother path, especially with positive signs like stronger-than-expected retail sales easing concerns about a potential recession.
However, some caution is still in the air. Fed Chair Jerome Powell hinted that we shouldn’t expect more aggressive cuts any time soon, causing some traders to “sell the news” after the initial rally. Even with this pullback, many analysts remain optimistic, pointing to strong technical signals and price targets that suggest the S&P 500 could continue to climb.

The Federal Reserve cut interest rates by half a percentage point in a decisive move to support the economy, marking its first reduction in four years. Initially, this action propelled stock markets to all-time highs, with the S&P 500 gaining 1%. However, the rally was short-lived as Fed Chair Jerome Powell cautioned against expecting additional large rate cuts in the near future. This prompted traders to “sell the news,” leading the S&P 500 to erase its gains and close down 0.3%. Market analysts offered mixed reactions: some viewed the rate cut as a normalization of monetary policy rather than a response to crisis, while others were skeptical about the need for aggressive easing. Despite the immediate market pullback, several experts remain optimistic about the long-term outlook, suggesting that lower rates and strong earnings growth could continue to support higher stock prices if the economy remains stable and inflation stays in check.

Global stocks surged following the Federal Reserve’s decision to cut interest rates by 50 basis points, aiming to steer the US economy toward a soft landing. The S&P 500 and Nasdaq 100 futures rose over 1%, while European and Asian markets also rallied. The rate cut fueled optimism that the US can avoid a recession, with 75% of Bloomberg survey respondents expecting the economy to dodge a technical recession by next year. Meanwhile, the Bank of England held rates steady whereas the Hong Kong Monetary Authority followed the Fed’s lead by lowering rates, bringing relief to borrowers. Commodities like oil and gold also gained, while the dollar weakened against major currencies.

The S&P 500 reached a new all-time high on Tuesday, its first record in over two months, climbing as much as 0.7% to an intraday peak of 5,670.81 and surpassing the previous record set on July 16. The surge came as investors anticipated the Federal Reserve’s interest rate cut—the first in 4.5 years—scheduled for Wednesday. Positive economic indicators, such as the Commerce Department’s August retail sales exceeded expectations, easing recession fears that weighed on the market during the summer. On September 19, the S&P 500 marked a new all-time high at 5694.78. The Dow Jones Industrial Average also hit a new intraday high at 42199.70, while the Nasdaq Composite Index saw daily gains of 2.19%.

The US Census Bureau reported that advance estimates of US retail and food services sales for August 2024 reached $710.8 billion, reflecting a 0.1% increase from the previous month and a 2.1% rise compared to August 2023. This steady growth in consumer spending signals easing recession fears. Total sales for the June through August period were up 2.3% from the same period last year. The June to July 2024 percent change was revised upward from 1.0% to 1.1%. Retail trade sales increased by 0.1% from July, with nonstore retailers showing strong growth at 7.8% year-over-year, and food services and drinking places up 2.7% from August 2023.

Since August 5, the S&P 500 has been in a persistent uptrend, characterized by a series of higher highs and higher lows, further supported by a “Golden Cross” double crossover between the 20 and 50-period Exponential Moving Averages (EMAs). The double crossover has further strengthened and accelerated the bullish momentum, reinforcing the upward trajectory of the Index. Even after a brief dip, the Index bounced back to hit a new all-time high of 5,694.78, surpassing its previous record from July. This rise was mainly driven by the Federal Reserve’s decision to cut interest rates by half a percentage point, giving the market extra momentum.
Technical indicators, including the 20 and 50-period EMAs, the Momentum oscillator, and the Relative Strength Index (RSI), all suggest a continuation of the bullish trend. The short-term EMA is trading above the longer-term EMA, and price action remains above both, signaling strength in the market. Additionally, the Momentum oscillator is positioned above the 100 baseline, and the RSI is holding above the 50 level, further confirming the upward bias. Upon closer examination, the presence of a negative divergence between the price and the Momentum oscillator signals a potential downside correction.
Using the Fibonacci Retracement tool, based on the recent swing high of 5657.68 and swing low of 5385.01, three potential price targets have been identified: 5826.19, 6098.86, and 6540.04. These levels provide potential upside objectives if the current trend persists.

In conclusion, while the Federal Reserve’s rate cut initially sparked a brief rally, caution surrounding future rate cuts led to a market pullback. However, technical indicators suggest the S&P 500 remains on a strong upward trajectory, with potential for further gains as investors remain optimistic about the economy’s ability to achieve a soft landing. If the current trend persists, there could be chances for more gains as the market breaks through important price barriers and hits target levels.