Wall Street’s major indexes rose on Friday as investors reassessed the possibility of a further interest rate cut by the Federal Reserve next week, with interest rate-sensitive small-cap stocks outperforming.
Traders’ bets on a 50-basis-point rate cut rose to 47% from 28% on Thursday, CME’s FedWatch tool showed, after former New York Fed President Bill Dudley said late Thursday there was a strong case for a 50-basis-point interest rate cut.
Media reports had said early on Thursday that the size of the cut was “a close call.”
“There are rumors that have started to emerge again that the discussion at the Fed is leaving 50 basis points on the table,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors, Southfield, Michigan.
Prior to this, bets that the Fed would maintain a smaller 25 basis point cut were firmed up on Thursday following news of slightly higher producer prices following August consumer price data.
While renewed hopes for a bigger cut boosted large-cap indexes on Friday, they were most evident in the small-cap Russell 2000 index, which rose 2.2%. Smaller companies are more sensitive to changes in interest rates, as they rely more on borrowed money and floating-rate loans.
Baird argued that Friday’s trading appeared to show investor optimism that a 50-basis-point cut would not signal an imminent recession.
“If investors were looking at this and saying they need to act faster because they’re behind the curve, you wouldn’t see a rally in risk assets like small caps,” Baird said. “We’re seeing a pretty strong rally in some of the riskier areas of the stock market today.”
At 2:20 p.m. ET, the Dow Jones Industrial Average was up 335.25 points, or 0.82%, at 41,432.02, the S&P 500 gained 33.65 points, or 0.60%, to 5,629.41 and the Nasdaq Composite was up 118.78 points, or 0.68%, at 17,688.45.
All 11 S&P 500 sectors rose, led by a 1.3% gain in materials stocks that followed a rise in precious metals prices.
A survey showed U.S. consumer confidence improved in September as inflation eased, although Americans remained cautious ahead of the presidential election in November.
All three major U.S. benchmarks were trading near two-week highs and on track for solid weekly gains.
Photoshop maker Adobe, down nearly 9%, was the biggest percentage decliner in the S&P 500 after forecasting fourth-quarter earnings that missed estimates.
Boeing shares fell 3% after workers at its West Coast factory walked off the job early Friday, overwhelmingly rejecting a contract deal.
Chinese e-commerce firm PDD Holdings lost 3% after the Biden administration said it was taking steps to curb low-value shipments entering the United States duty-free below the $800 “de minimis” threshold.
Uber gained 5.8% after the ride-sharing platform said it would bring autonomous rides to Austin, Texas, and Atlanta in partnership with Alphabet’s Waymo.
Advancing stocks outnumbered declining stocks by a ratio of 5.52 to 1 on the New York Stock Exchange, where there were 580 new highs and 25 new lows.
On the Nasdaq, 3,166 stocks rose and 1,022 fell as advancing stocks outnumbered declining stocks by a ratio of 3.1 to 1. The S&P 500 posted 58 new 52-week highs and one new low, while the Nasdaq Composite posted 106 new highs and 47 new lows.
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