Stocks rally: U.S. stocks are staging a remarkable rebound, boosted by renewed hopes for a soft landing for the economy as recent data eases fears of a recession. The S&P 500 index is up more than 6% since Aug. 5, rebounding from its biggest three-day drop in more than two years.
The positive momentum is reflected in the Cboe Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” which has fallen significantly from its four-year highs. This shift in market sentiment follows encouraging reports on retail sales, inflation and producer prices, which have eased concerns stemming from weaker-than-expected jobs data earlier this month. “A real fear of growth had been building,” said Mona Mahajan, senior investment strategist at Edward Jones. “Since then, economic data has actually come out in a much more positive light.”
Several key stocks have rallied strongly since the beginning of August. Chipmaker Nvidia has seen its shares rise more than 20%, while the Philadelphia Semiconductor Index has gained more than 14%. Small-cap stocks have also rallied, with the Russell 2000 Index up nearly 5%.
Federal Reserve Rate Policy
Market participants are adjusting their expectations regarding the Federal Reserve’s interest rate policies. Late Thursday, futures tied to the federal funds rate were indicating a 25 percent chance of a 50-basis-point rate cut in September, down from about 85 percent earlier this month. The probability of a 25-basis-point cut stands at 75 percent, suggesting a more cautious approach by the central bank.
Jim Baird, chief investment officer at Plante Moran Financial Advisors, said that while a hard landing cannot be completely ruled out, there are reasons to believe that economic momentum remains.
The upcoming annual economic policy symposium in Jackson Hole, Wyoming, where Federal Reserve Chairman Jerome Powell is scheduled to speak, is expected to provide more clarity on the central bank’s direction. Economists anticipate Powell’s remarks will acknowledge sufficient progress on inflation, potentially paving the way for future rate cuts.
So far this year, the S&P 500 is up more than 16% and is nearing its all-time closing high from July. Analysts suggest that a soft landing, combined with lower interest rates, could facilitate broader participation in the market rally, beyond the dominance of a few large-cap stocks.
(With contributions from Reuters)
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