In a remarkable eight-day winning streak, U.S. stocks have climbed to new highs in 2024, reflecting optimism that the Federal Reserve may soon signal a shift towards lowering interest rates. This positive momentum, the longest winning streak of the year, underscores the market’s anticipation of potential rate cuts, which could be confirmed during Fed Chairman Jerome Powell’s upcoming speech at the Jackson Hole Symposium.
The financial markets are laser-focused on the Fed’s next moves, especially as we approach a pivotal moment. Investors are particularly interested in whether Powell will indicate a reduction in interest rates as early as September. However, the broader question lies in the trajectory of these cuts over the coming months, as the Fed navigates the delicate balance between controlling inflation and sustaining employment.
Despite the challenging environment for traders during the traditionally slow summer months, there remains a strong appetite for equities. Market participants have largely brushed off recent volatility, maintaining solid allocations to stocks. “Investors have shown resilience, pushing through market anxieties as the rally gains strength,” said Craig Johnson of Piper Sandler. He predicts that stocks may consolidate before Powell’s speech at Jackson Hole.
Ohsung Kwon of Bank of America echoed this sentiment, noting that while the Fed may not fully align with the market’s dovish expectations, as long as economic growth remains stable, equities should continue to perform well. “Stocks need just a slight assurance that growth is supported,” Kwon said. “Although we believe risks tilt to the upside, we do not expect Jackson Hole to catalyze significant moves in the equity markets as it has in the past.”
The S&P 500 advanced to 5,575, reflecting robust market performance. In corporate news, Advanced Micro Devices Inc. announced a $4.9 billion acquisition of server maker ZT Systems, while Estée Lauder’s sales forecast fell short of expectations. Major retailers like Lowe’s, Target, and TJX are also set to report earnings this week, adding more variables to the market landscape.
In the bond market, 10-year Treasury yields slightly dipped to 3.87%, while the Japanese yen strengthened by about 1% ahead of key central bank announcements later this week. Gold, which had recently reached a record high, also saw a pullback.
Matt Maley of Miller Tabak + Co. suggested that many investors might adopt a wait-and-see approach ahead of Powell’s address. “Even though several retailers are reporting earnings this week, the absence of major data likely to move markets significantly may cause investors to remain cautious.”
Market positioning has returned to moderately overweight, recovering from a brief dip to underweight levels, according to Deutsche Bank strategists Parag Thatte and Binky Chadha. However, exposure remains below mid-July peaks, suggesting room for further gains as momentum traders and corporate buybacks could fuel a continued rally over the next month, according to Goldman Sachs.
“The path of least resistance for equities is upward, with the bar set high for bearish sentiment as we approach Labor Day,” wrote Goldman’s Scott Rubner. Recent economic data and strong earnings have boosted confidence among JPMorgan Chase traders, who believe U.S. stocks have room to rally through the end of the year. “While the upside may be more restrained than earlier this year, there’s still significant potential,” noted Andrew Tyler of JPMorgan.
As the S&P 500 looks to extend its winning streak, Bespoke Investment Group data indicates that after seven consecutive days of gains, the index typically continues to rise, with median gains of 0.58% over the following week and 0.96% over the next month.
However, the upcoming August jobs report will likely play a crucial role in determining the market’s direction, according to Morgan Stanley’s Michael Wilson. “The real test will be in the August jobs data. A strong report would reinforce confidence in growth, while a weak one could reignite concerns,” Wilson commented.
Despite an overall bullish outlook, UBS Private Wealth Management’s Greg Marcus warned that the market’s path forward might not be a straightforward climb. “We expect some volatility as the economy shows mixed signals. However, we remain optimistic that the Fed will reduce rates by 25 basis points in September, unless unforeseen negative developments occur.” Marcus advised investors to prepare for rate cuts by extending the duration of their cash holdings and diversifying within U.S. stocks, especially into value stocks and small caps.
Sam Stovall of CFRA highlighted that recent reports on inflation, jobs, and retail sales have given investors reason to stay optimistic, suggesting that the economy remains resilient. “History provides two precedents that, while not guaranteed, indicate the market could be on the road to recovery,” Stovall said.
Goldman Sachs strategists, led by David Kostin, cautioned that corporate America’s revenue expectations for 2025 might be overly optimistic given the anticipated economic moderation and a weakening dollar. They project a 4% rise in S&P 500 sales in 2025, compared to a 6% increase this year, contrasting with analysts’ expectations of a 5.8% revenue boost.
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