This year, investors have hitched their wagons to — likely more than any other one variable — the Fed cutting interest rates. With the Federal Funds Rate at 4.25% to 4.5%, interest rates are still generationally high. Investors argue, therefore, that if rates come down, stocks, especially small and mid-cap companies, could rally.
Thus far it's been more of a romantic ideal than a market reality. But after Tuesday's inflation print, the fantasy is starting to look real. The "inevitability" of lower interest rates is settling in as the doors are wide open for a September cut. Most analysts are expecting 0.25 percentage point, but Treasury Secretary Scott Bessent said Wednesday that it could be a supersized half-point cut based on the way the labor market is looking.
Does that mean that stocks, even at records, could go even higher? If this morning is any indication, maybe investors have right-sized their bullishness. Stocks are higher, led by the Russell 2000 (+1.3%), which rose nearly 3% yesterday. It's trailed by the Dow (+0.76%), S&P 500 (+0.1%), and Nasdaq (+0.02%).
Wednesday Reading:
The latter two set records yesterday and would be tracking for a fresh record if they stayed in the green today. And all this excitement is based on anticipation alone. Notwithstanding strong earnings, which have helped buoy stocks in recent weeks, perhaps we'll see more cuts where the September one came from. Is the market's new strategy really turning into "Buy high, sell higher?"
-- Noah Weidner, markets reporter
TurboTax Via TheStreet
