Could there be a Fed rate cut in the cards?
Despite the US Labor Department reporting unimpressive May job numbers on Friday, stock markets surged, boosted by market participants’ bets that the Fed could cut interest rates. Weakness in the labor market could push the Fed to cut rates sooner than later this year.
The S&P 500 gained 1.05%, the tech-heavy NASDAQ Composite gained 1.6%, and the Dow Jones Industrial Average gained 1.02%. The SPDR S&P 500 ETF (SPY), which tracks the S&P 500, gained 4.5% last week.
Markets also gained after Donald Trump called off tariffs for Mexico. According to Bloomberg, JPMorgan Chase chief US economist Michael Feroli expects the Fed to lower rates by a quarter of a percentage point in September and December. Labor markets were strong in March and April before weakening in May due to ongoing US-China trade tensions.
At its May meeting, the Fed indicated it would be taking a calmer approach to interest rate hikes this year. However, three days after the meeting, trade talks with China escalated. Fed chairman Jeremy Powell indicated last week that the Fed would closely monitor the situation and reconsider its stance owing to rising trade tensions and sluggish economic growth.
Markets continued their rally today. As of 2:54 PM, the S&P 500 had gained 0.67%, the NASDAQ had gained 1.3%, and the Dow Jones had gained 0.52%.