Following a 50 basis point rate cut, the S&P 500 hit record highs, and Gold rallied to all-time highs.
At current levels, the index’s valuation of 21 times forward earnings is significantly higher than the long-term average. However, near-term momentum is bullish for markets
The Federal Reserve has shifted its focus from solely addressing inflation to balancing inflation control with supporting employment. Inflation, as measured by the personal consumption expenditures (PCE) price index, held steady in July at 2.5%, while the core gauge was 2.6%. Fed Chair Jerome Powell indicated that inflation has been largely tamed through high interest rates, and the labor market is no longer overheated, with the unemployment rate rising to 4.2%. The Fed now aims for a “soft landing,” reducing inflation without triggering a recession, as job growth slows but remains positive.
Stocks surged despite higher than expected inflation data, driven in part by Nvidia’s 16% rise due to strong AI chip demand. Markets are split on whether the Federal Reserve will cut rates by 25 or 50 basis points. Meanwhile, gold hit a historic high of $2,600/oz. The ECB also cut interest rates for the second time this year.
US stocks concluded a volatile month in a positive mood, buoyed by core PCE data suggesting potential interest rate cuts in September and beyond. Retailers announced weak sales guidance for the year as they continue to see a shift in spending from discretionary items to essentials. Nvidia’s shares initially dropped over 8% despite strong earnings before recovering as they see a slowdown in sales growth and reduction in margins.
