Stock rally falters as traders weigh "conflicting" economic signals

A rally that put stocks on track for their best week in 2024 lost steam on Friday, with traders assessing the latest economic data for clues on the outlook for Federal Reserve policy.

Just a week ahead of Jerome Powell’s speech in Jackson Hole, Wyoming, Wall Street paused to evaluate a raft of data points that on balance signaled the Fed won’t need to rush to deploy aggressive easing as the economy isn’t falling off a cliff. That view has led traders to pare back their bets on jumbo rate cuts this week, with the market still gearing up for a first Fed cut in September.

After a six-day rally, the S&P 500 edged mildly lower. Treasuries saw small moves. The dollar slipped. Gold climbed to $2,500 for the first time.

US consumer sentiment rose in early August for the first time in five months on more optimistic expectations about their finances as inflation steadied. The rise in sentiment was partially driven by President Joe Biden’s decision not to seek re-election. New-home construction in the US fell in July to the lowest level since the aftermath of the pandemic.

“Investors should expect more volatility in the near term as the economic data likely give conflicting signals,” said Jeff Roach at LPL Financial.

Fed Chair Jerome Powell will speak next Friday at the Kansas City Fed’s Jackson Hole Economic Policy Symposium.

With the central bank on the cusp of lowering interest rates from a more than two-decade high, Powell’s comments will be closely parsed for any hints on how the Fed chief is viewing the economy in the wake of a weaker-than-expected jobs report and further easing in inflation. 

The Fed is widely expected to reduce borrowing costs at their next gathering Sept. 17-18, but there is some disagreement around just how big that cut will be. 

“The main message in Fed Chair Jerome Powell’s speech will likely be that monetary policy overall has worked as intended, and the current level of rates is restrictive,” said Anna Wong at Bloomberg Economics. “He may say the balance of risk between the Fed’s mandates - employment and inflation - is about even. We expect him to signal a rate cut is coming, but not to indicate whether it will be 25 basis points or 50 bps. That will depend on the August jobs report.”

At Bank of America Corp., Ralf Preusser says the next few weeks will likely determine whether the Fed ends up cutting by 50-75 basis points this year or more aggressively. 

“We maintain a bullish bias in US rates, and would see a Jackson Hole-induced selloff as an opportunity to buy, he noted.

Fed Bank of Chicago President Austan Goolsbee said the labor market and some leading indicators on the economy are flashing warning signs, adding there are concerns unemployment will continue to rise.

Corporate Highlights:

• Texas Instruments Inc. is set to receive $1.6 billion in Chips Act grants and $3 billion in loans, the Biden administration announced Friday, marking the latest major award from a program designed to boost American semiconductor manufacturing.
• Rivian Automotive Inc. has paused production of the electric commercial van it makes for Amazon.com Inc. due to a parts shortage in the latest supply chain snafu for the EV maker.
• Bayer AG shares jumped following a significant win for the German company in the long-running cancer litigation over its Roundup weedkiller.
• BHP Group and union leaders in Chile reached a preliminary wage agreement on Friday, setting the stage for a resumption of normal production at the world’s biggest copper mine.
• A combination Covid-flu vaccination developed by Pfizer Inc. and BioNTech SE missed on one of its goals in a final-stage trial, a setback for the companies as they search for lucrative new uses of a technology that succeeded in the pandemic.
• Autodesk Inc. continued to use a controversial sales strategy after promising investors it would stop and ignored internal warnings about the risks of doing so, according to previously unreported internal documents.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2% as of 10:50 a.m. New York time
• The Nasdaq 100 fell 0.3%
• The Dow Jones Industrial Average fell 0.2%
• The Stoxx Europe 600 rose 0.2%
• The MSCI World Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.1% to $1.0987
• The British pound rose 0.2% to $1.2885
• The Japanese yen rose 0.8% to 148.04 per dollar

Cryptocurrencies

• Bitcoin rose 2.4% to $58,041.05
• Ether rose 1.3% to $2,582.95

Bonds

• The yield on 10-year Treasuries was little changed at 3.91%
• Germany’s 10-year yield declined two basis points to 2.25%
• Britain’s 10-year yield was little changed at 3.92%

Commodities

• West Texas Intermediate crude fell 2.2% to $76.41 a barrel
• Spot gold rose 1.2% to $2,485.67 an ounce