In a positive turn of events, US equity indexes experienced a notable rise this week, with the real estate sector emerging as the leading gainer. This upward movement comes on the back of investor optimism regarding potential policy changes from the Federal Reserve. Chair Jerome Powell's recent comments highlighted that soft employment figures are becoming more concerning than inflation, hinting at a shift in monetary policy as early as September. The Dow Jones Industrial Average closed at 41,175.08 on Friday, reflecting a significant increase from last week’s figure of 40,659.76.
Similarly, the Nasdaq Composite ended at 17,877.89, compared to its prior close of 17,631.72, and the S&P 500 saw a rise to 5,634.61 from 5,554.25 a week earlier. The real estate sector has stood out as the top performer this Friday, marking a strong week and month overall. During the Jackson Hole symposium, Powell stated, 'the time has come for policy to adjust,' emphasizing that data will guide the timing and pace of any rate cuts.
He noted a shift in the balance of risks; while the economy shows solid growth, inflation and labor market data point to an evolving situation. 'The upside risks to inflation have diminished, while downside risks to employment have increased,' he added, providing insight into the Fed's current perspective on economic conditions. As uncertainty looms, the CBOE Volatility Index (VIX), often referred to as the fear gauge, dropped by 9.5% late on Friday, though it is on track for a weekly increase, which could raise alerts among investors if the trend of rising market indexes continues. In terms of yields, the US 10-year Treasury yield decreased by 5.7 basis points to settle at 3.81% by the close of trading on Friday, indicating a weekly decline.
Meanwhile, the two-year yield fell more sharply, dropping 9.7 basis points to 3.91%, down from figures observed the previous week. According to the CME Group's FedWatch Tool, the probability of a 25 basis-point interest-rate cut stands at 68% as of late Friday, which shows a shift from the 76% likelihood indicated just a day earlier.
Conversely, the chance for a more aggressive 50 basis-point cut has risen to 32%, up from 24% reported the previous day. Amid these developments, Nigel Green, CEO of DeVere Group, remarked in a recent note that calls for a significant 50-basis point cut in September are becoming increasingly prevalent.
He asserted, '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 required stimulus to stave off a potential hard landing.' This perspective reflects growing concerns regarding the economic landscape and the Fed's potential response as it navigates these challenges. Overall, investors will be watching closely as the Federal Reserve prepares to make crucial decisions that could significantly impact market dynamics in the near future..