On a notable trading day, US equity indexes experienced a rally following remarks from Federal Reserve Chair Jerome Powell, indicating that the "time has come" to recalibrate monetary policy. This statement instilled confidence in investors, particularly as inflation trends towards the central bank's target of 2%.
The S&P 500 index witnessed a commendable increase of 0.6%, reaching 5,605.4 points, while the Nasdaq Composite climbed 0.9% to 17,779.2. The Dow Jones Industrial Average also gained traction, rising 0.7% to 40,995.3. Interestingly, all sectors observed gains, barring consumer staples, with energy and consumer discretionary stocks emerging as key front-runners. Powell's comments made at the Jackson Hole symposium in Wyoming were critical in shaping market sentiment: "The time has come for policy to adjust," he stated.
"The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks." In the commodities space, gold prices surged by 1.1%, reaching $2,544.21 an ounce, while silver experienced a more robust 2.3% increase to $29.71. This momentum in precious metals can be attributed to market expectations surrounding prospective rate cuts.
Additionally, the U.S. dollar saw a 1% depreciation against the Japanese yen, settling at 144.83, reflecting a broader recognition among asset classes that the United States is moving towards a more accommodative monetary policy. Meanwhile, oil prices demonstrated vigorous activity, with West Texas Intermediate crude oil prices leaping 2.6% to $74.91 a barrel.
As Powell discussed the economy, he emphasized the consistent growth trajectory observed. "Overall, the economy continues to grow at a solid pace," he noted. "However, both inflation and labor market data highlight a dynamically changing situation." He further acknowledged that while the risks to inflation have receded, challenges in the employment landscape are becoming increasingly pronounced: "The upside risks to inflation have diminished.
And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate." The anticipation of a significant 50-basis point rate cut in the upcoming September meeting is gaining traction. Nigel Green, CEO of DeVere Group, emphasized in a recent note: "The truth is, the Fed was too slow to act when this cycle began.
A small cut might signal a shift, but it won't deliver the jolt needed to prevent a potential hard landing." According to data from the CME Group's FedWatch Tool, the likelihood of a 25 basis-point cut in the target rate dropped to 64% by Friday afternoon, down from 76% a day prior. Conversely, the probability for a 50-basis point drop increased to 36%, up from 24% the previous day. In the bond market, most Treasury yields decreased throughout the session.
The yield on the 10-year Treasury note fell by 4.4 basis points to 3.82%. The two-year yield was reported at 3.94%, reflecting a notable drop of 6.7 basis points. Moreover, the CBOE Volatility Index (VIX), commonly referred to as the fear gauge, traded 3.7% lower at 16.83, although it was recovering from its intraday lows. In corporate highlights, shares of Workday ($WDAY) showed remarkable strength, soaring 11% intraday, making it the top gainer on the Nasdaq.
This surge followed the company's release of fiscal Q2 results that surpassed market expectations, alongside a reaffirmation of its full-year subscription revenue outlook..