In the latest trading session, US equity indexes displayed a mixed performance as sectors such as consumer discretionary and technology saw declines. Market participants are currently pricing in a heightened likelihood of a significant, 50 basis-point interest rate cut during the Federal Reserve's forthcoming policy announcement, which is notable as it occurs just before the upcoming US presidential elections.
The S&P 500 index experienced a slight decrease of 0.1%, settling at 5,618.5, while the Nasdaq Composite fell 0.8% to reach 17,537.9 during Monday's midday trading. Contrarily, the Dow Jones Industrial Average observed a modest uptick of 0.3%, standing at 41,527.1. With the exception of the consumer discretionary and technology sectors, all other sectors displayed gains intraday. In the bond market, Treasury yields witnessed a decline, with the 10-year yield decreasing by 1.6 basis points, now at 3.63%, and the two-year rate dropping by 1.1 basis points to 3.56%. As for interest rate expectations, the probability of a 50 basis-point rate cut on September 18 surged to 59% by Monday afternoon, a considerable rise from the 30% likelihood observed just a week prior.
This shift has reshaped market sentiments, leaving a 41% chance for a lesser, 25 basis-point cut, a stark drop from the 70% predicted a week ago. The upcoming Federal Open Market Committee's policy announcement marks a critical juncture ahead of the presidential elections scheduled for November 5. Derek Holt, head of capital markets economics at Scotiabank, indicated in a detailed note that opting for larger rate cuts could convey the Federal Reserve's serious concerns regarding the current state of the US economy.
He pointed out that the jobs data remains soft, and while core inflation shows mixed signals, it is continuing to ease. Holt noted that the gross domestic product (GDP) demonstrated a robust increase of 3% in Q2, with the ongoing forecasts by the Atlanta Federal Reserve and New York Federal Reserve indicating approximately 2.5% growth for Q3. "The anticipated soft landing we've been expecting is gradually materializing," Holt commented, emphasizing the Scotiabank's stance anticipating a 25 basis-point rate reduction, as there appears to be no compelling reason for an immediate rush in decision-making. From an economic perspective, the New York Federal Reserve's Empire State manufacturing index displayed a notable rebound, soaring to 11.5 in September, a significant improvement from the minus 4.7 recorded in August, which surpassed analysts' expectations of a modest improvement to minus 4 according to a Bloomberg survey. On the corporate front, significant developments emerged as Intel ($INTC) received official qualification for up to a staggering $3.5 billion in US government funding aimed at producing semiconductors for a classified military program.
Citing unnamed sources, a Bloomberg news report highlighted this news, with Intel's shares surging nearly 4% intraday, making it the top performer on the S&P 500, Nasdaq, and Dow indices. In commodity markets, West Texas Intermediate crude oil futures also enjoyed a boost, climbing 1.9% to reach $69.94 a barrel.
This uptick indicates a potential shift in consumer demand or economic sentiment that often drives crude prices higher. The interplay between interest rates, economic performance, and corporate developments continues to shape the financial landscape in anticipation of the Federal Reserve's upcoming announcements and the broader economic implications as the presidential election approaches..