The recent surge in the US stock market can be attributed to positive economic data that has alleviated concerns about an impending recession. Following a significant sell-off earlier in the month, the S&P 500 has managed to bounce back by over 6%. This recovery has been fueled by reports on retail sales, inflation, and producer prices, which have reassured investors about the state of the economy. The Cboe Volatility Index, also known as the “fear gauge,” has retreated from its recent highs at a rapid pace, indicating a return to calm on Wall Street.
Some of the biggest winners in 2024, such as chipmaker Nvidia and the Philadelphia SE Semiconductor index, have experienced strong rebounds, with gains exceeding 20% and 14% respectively. Additionally, small-cap shares, which were performing well in July, have also bounced back from recent lows, with the Russell 2000 index up nearly 5%. This resurgence in key sectors of the market has contributed to the overall optimism among investors.
Changes in Rate Cut Expectations
Traders are now scaling back their expectations of jumbo-sized rate cuts by the Federal Reserve in September, with the probability of a 50 basis point cut dropping from 85% to 25%. This shift in sentiment suggests that investors are becoming more confident in the resilience of the economy and are less concerned about the need for drastic monetary measures to avoid a recession. The Fed’s plans are expected to become clearer when Chair Jerome Powell speaks at the upcoming economic policy symposium in Jackson Hole, Wyoming.
Analysts are cautiously optimistic about the market’s outlook, with expectations of a soft landing scenario that could pave the way for more stocks to participate in the rally. The AI narrative, which drove market gains earlier in the year, is expected to regain momentum and lift the S&P 500 to new highs. Despite recent positive economic data, analysts warn that the market is not entirely out of the woods, especially with historical volatility in September. Key events to watch include Nvidia’s earnings release and the upcoming employment report on September 6.
The recent surge in US stocks can be attributed to positive economic data that has allayed fears of a recession. Investors are increasingly confident in the strength of the economy, leading to a rebound in key sectors of the market. While the outlook remains positive, caution is advised with potential volatility ahead in September. The upcoming events and economic data releases will be critical in determining the market’s direction in the coming months.
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