In a robust midday trading session on Monday, US equity indexes experienced notable gains fueled by a persistent decline in market volatility, instilling confidence among investors regarding the prospect of a soft landing for the US economy. The Nasdaq Composite saw a substantial increase of 0.7%, reaching 17,751.1, while the S&P 500 rose by 0.5% to settle at 5,585.2.
The Dow Jones Industrial Average followed suit, climbing 0.4% to 40,831.9. This uptrend was broad-based, with all sectors participating in the rally. Noteworthy performers included communication services, energy, and consumer discretionary stocks, which led the advancing shares. The CBOE Volatility Index (VIX), a key indicator of market volatility, dipped by 0.1% to 14.78, retreating from the elevated level of 65 reached earlier in the month.
The market sentiment seemed to shift as fears of significant economic downturn subsided. According to Oxford Economics, the recent volatility seen in the markets was primarily a reflection of technical selling spurred by mixed economic data rather than a fundamental shift in macroeconomic conditions.
In their commentary, they reaffirmed their outlook of a soft landing for the US economy, attributing continued growth to the resilience of the consumer sector. Moreover, as per the CME Group's FedWatch Tool, there has been a distinct decline in the probability forecasted for a substantial interest rate cut by the Federal Reserve at their upcoming monetary policy meeting scheduled for September 18.
The likelihood of a drastic 50 basis point cut has decreased to 23%, down from 50% just a week ago. Conversely, the chance of a more modest 25 basis point reduction has risen to 77% from the previous 50%. All eyes will be on the annual Jackson Hole Monetary Policy Symposium, commencing Thursday, where participants anticipate insights from Federal Reserve Chair Jerome Powell.
Market expectations are leaning towards a dovish tone following the recent inflation and retail sales figures, which did not validate concerns initially raised by a significant drop in July's nonfarm payrolls. In other economic updates, the Conference Board reported a decrease of 0.6% in leading indicators for July, which fell short of the anticipated 0.4% decline based on a survey by Bloomberg.
Furthermore, the US Census Bureau noted that online retail sales climbed by 1.3% in the second quarter, although this growth rate was slower than the 1.6% increase observed in the previous quarter. Year-on-year, online sales were up by 6.7%. In the fixed income markets, most Treasury yields saw a decline, with the 10-year yield dropping by 3.2 basis points to 3.86%, while the yield on the two-year note slipped by 1.5 basis points to 4.05%.
In commodities, West Texas Intermediate crude oil experienced a notable decrease, falling 2.8% to $74.51 per barrel. Market analysts at PVM Oil Associates pointed out that demand concerns are exacerbated by ongoing economic challenges in China, the world’s largest oil importer. Specifically, they highlighted weaknesses in China's house price index, fixed asset investment, industrial production, and rising unemployment rates.
In corporate news, Advanced Micro Devices ($AMD) announced its decision to acquire ZT Systems, a provider of artificial intelligence infrastructure solutions, for approximately $4.9 billion, indicating the chipmaker's strategic focus on enhancing its AI data center growth strategy. Following the announcement, $AMD's shares rose by 2.5%. On the other hand, Estee Lauder ($EL.US) provided a bleak earnings forecast for fiscal 2025, citing a decline in demand, particularly in the Chinese market.
Additionally, the company’s CEO, Fabrizio Freda, revealed plans for his retirement next year. In precious metals, gold edged up by 0.2% to $2,542.81 per ounce, while silver saw a more significant rise of 1.5%, reaching $29.28. Overall, the market’s current trajectory appears optimistic, buoyed by improved investor sentiment and a stabilizing economic outlook as analysts await further cues from the Federal Reserve’s upcoming meetings..