| Summary A 50 basis point rate cut from the Federal Reserve triggered a breakout in U.S. stocks, pushing the S&P 500 above key resistance levels. However, investors remain cautious of potential reversals and await further economic data. |
An aggressive 50 basis points rate cut from the Federal Reserve has led to a breakout in US stocks.
SP500 – Daily Chart
The SP500 has broken above the July resistance level at 5,680. These new highs can lead to further gains. Investors should beware of a false breakout where a move back below 5,680 could lead to a correction.
Investors were optimistic that the Federal Reserve’s half-percentage-point rate cut will steer the US economy onto a “soft landing.” In contrast, others anticipate further economic data and an earnings report from delivery services giant FedEx.
The Fed slashed its benchmark interest rate by the most since 2008, and its first rate reduction in over four years. The Federal Open Market Committee voted by 11 to 1 to reduce the federal funds rate to a range of 4.75% to 5.00% after it remained elevated for one year.
In the central bank’s statement, policymakers said they will contemplate “additional adjustments” to rates depending on “incoming data, the evolving outlook, and the balance of risks.” However, Fed Chair Jerome Powell warned against expecting a similar pace in the months ahead.
“This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%,” Powell said.
Projections released after the central bank’s two-day meeting showed that 10 out of 19 policymakers supported cutting rates by at least an additional half-point during the two remaining 2024 meetings. The projections also showed an extra percentage point of cuts in 2025.
The Fed has a reputation for not rushing any policy changes, so there’s the potential for some disappointment at later meetings, especially if the data changes. However, a weak jobs market was one of the key reasons for the interest rate cut.
The S&P 500 broke above key resistance, and after the much-anticipated rate cut, further catalysts will need to remain elevated.
