The three major U.S. averages on Wednesday ended solidly higher, after Federal Reserve chair Jerome Powell said an interest rate cut “could be on the table as soon as September” if data on inflation and the labor market continued to improve.
Powell's remarks, along with a powerful rebound in chip stocks, helped the Nasdaq Composite (COMP:IND) and the benchmark S&P 500 (SP500) post their best intraday gain each since February 22.
The Nasdaq Composite climbed 2.64% to settle at 17,599.40 points, while the S&P 500 closed out the final day of the month with an advance of 1.58% to 5,522.30 points. The blue-chip Dow (DJI) added 0.24% to conclude at 40,843.06 points.
U.S. Treasury yields moved lower after Powell's comments, as traders snapped up bonds. The longer-end 10-year yield (US10Y) fell to its lowest level since March, dropping 7 basis points to 4.032%.
Earlier, the Federal Open Market Committee (FOMC) held the federal funds rate steady at 5.25%-5.50%, a largely given outcome.
The attention was on Powell's post-decision press conference, amid hopes that the central bank chief would talk about interest rate cuts in September. And Powell did not disappoint.
He signaled that policymakers could be considering an interest rate cut as soon as September if they continued to see inflation moving quickly or in line with their expectations, growth remaining reasonably strong and the labor market staying consistent with its current conditions.
According to the CME FedWatch tool, the odds of a 50 basis point rate cut in September climbed after Powell's comments, underscoring the market's confidence that the monetary policy easing cycle was imminent. There is now a 90.5% chance of a 25 bp cut, a 9.5% chance of a 50 bp cut, and a 0.0% chance of a 0 bp cut.
Nvidia (NVDA) surged 17%, after Morgan Stanley re-added the chip giant to its top picks list following the stock's recent selloff. In addition, Microsoft and Meta reiterated and increased their capital expenditure investments, signaling further revenue upside for Nvidia. Advanced Micro Devices (AMD) climbed 4%, after the world's second-largest maker of personal computer processors issued current quarter revenue guidance that was above consensus estimates.
Microsoft (MSFT) slipped 1%, after the tech behemoth's cloud business missed on revenue and its quarterly capital expenditure swelled to $19B.
Turning to Wednesday's economic calendar, ADP's jobs report before the opening bell showed private sector employment growing by 122K in July, significantly lower than the consensus figure of 154K. Shortly after, a key gauge of Q2 U.S. labor costs rose lesser than anticipated while also slowing down from the previous quarter.
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