The S&P 500 and Nasdaq Composite extended their recent gains on Wednesday, driven by growing investor confidence following the release of the Federal Reserve’s July meeting minutes. The summary reinforced hopes for a potential interest rate cut in September, propelling the S&P 500 within striking distance of its all-time high and marking the ninth winning session out of the last ten for both indices. Despite global markets facing mixed economic signals, including Japan’s unexpected trade deficit and revised job growth figures in the US, the positive sentiment surrounding a possible easing of monetary policy spurred a rally in equities, with small-cap stocks notably outperforming. As investors await further guidance from Fed Chair Jerome Powell at the upcoming Jackson Hole Symposium, the market remains hopeful about the path forward amidst a backdrop of economic uncertainties.

Key Takeaways:

  • S&P 500 Nears Record High Amid Rate Cut Optimism: The S&P 500 climbed 0.42% to close at 5,620.85, marking its ninth positive session in the last ten and bringing the index within 1% of its all-time record close. The rally was fuelled by investor expectations for a potential September rate cut, as highlighted in the minutes from the Federal Reserve’s July meeting.
  • Nasdaq Composite Extends Gains: The Nasdaq Composite rose 0.57% to finish at 17,918.99, also achieving its ninth winning session out of the last ten. The tech-heavy index benefited from a broad rally, with four of its sectors hitting 52-week highs, as traders priced in a 100% chance of a rate cut next month.
  • Dow Jones Posts Modest Increase: The Dow Jones Industrial Average added 55.52 points, or 0.14%, to close at 40,890.49. This marked the Dow’s sixth winning session in the last seven, contributing to the positive momentum seen across major US indices despite the ongoing economic uncertainties.
  • Fed Meeting Minutes Signal Likely September Rate Cut: The minutes from the Federal Reserve’s July meeting indicated that a rate cut in September is increasingly probable, with “the vast majority” of participants agreeing that easing monetary policy would be appropriate if economic data continues to align with expectations. This has reinforced market expectations, with traders fully pricing in a rate cut next month.
  • European Markets Rebound Amid Fed Optimism: European markets saw a positive turnaround, with the pan-European Stoxx 600 index rising 0.32%, led by strong performances in the autos (+1.45%) and mining (+1.02%) sectors. The FTSE 100 edged up 0.12% to 8,283.43, while the CAC 40 gained 0.52%, as investors focused on the potential for dovish Fed actions.
  • Asian Markets Mostly Lower After US Rally Falters: Asia-Pacific markets ended mostly lower on Wednesday, following a faltering rally in the US overnight. Japan’s Nikkei 225 slipped 0.29% after trade data showed a larger-than-expected deficit. Hong Kong’s Hang Seng index fell 0.82%, driven by declines in technology and consumer cyclical stocks, while mainland China’s CSI 300 edged down 0.33%. South Korea’s Kospi managed a slight gain of 0.17%, while Australia’s S&P/ASX 200 rose 0.16%, crossing the 8,000 mark for the first time since early August.
  • Nonfarm Payrolls Revised Downward Significantly: The US Labour Department reported a significant downward revision of nonfarm payroll growth, reducing the total by 818,000 jobs for the 12-month period through March 2024. This revision, the largest since 2009, suggests the labour market was weaker than initially reported, which could influence the Federal Reserve’s decisions on future interest rate cuts.
  • Treasury Yields Dip After Fed Minutes Release: The yield on the US 10-year Treasury note fell more than 2 basis points to 3.797% after the release of the Federal Reserve’s July meeting minutes. The 2-year Treasury yield also declined, dropping about 7 basis points to 3.931%, as the market fully priced in the likelihood of a September rate cut.
  • Oil Prices Decline Amid Weaker Economic Data: US crude oil futures fell to $71.93 per barrel, down 1.69%, following the Labor Department’s downward revision of job growth numbers raised concerns about the strength of the US economy. Brent crude also dropped, settling at $76.05 per barrel, as investors weighed the potential impact of weaker economic conditions on future oil demand.

FX Today:

  • EUR/USD Hits 13-Month High as Dollar Weakens Post-Fed Minutes: The EUR/USD pair surged to fresh 13-month highs on Wednesday, breaching the 1.1150 level and approaching 1.1200 as the US dollar weakened due to the Federal Reserve’s July meeting minutes. The euro has gained over 3% in August alone, with the pair up nearly 3.7% from 1.0777 and well above its 200-day EMA, currently rising towards 1.0825. This robust performance sets the stage for further advances as traders continue to bet on a weaker dollar.
  • GBP/USD Rises and Eyes 2023 High: The British pound extended its rally against the US dollar on Wednesday, breaking through the key 1.3100 level for the first time since the summer of 2023, closing up 0.45% at 1.3091. The pair has been reinforced by a pronounced sell-off in the dollar, with GBP/USD now targeting the 1.3142 with further gains toward 1.3200 are possible. Conversely, a retreat below the 1.3044 level could pave the way for a pullback, with the psychological 1.3000 figure acting as key support.
  • AUD/USD Moderates Gains Amid Overbought Conditions: The Australian dollar saw a slight pullback on Wednesday, with the AUD/USD pair adjusting to 0.6745 after approaching resistance near the 0.6750 level. The Moving Average Convergence Divergence (MACD) indicator remains bullish, suggesting that the overall sentiment is still positive. Traders should closely watch the 0.6750 resistance level, with support expected within the 0.6700-0.6650 zone if the pair fails to break higher.
  • USD/JPY Retreats as Yen Approaches Year-to-Date High: The Japanese yen strengthened against the US dollar, with USD/JPY falling to 145.02, down 0.16% on the day, as traders adjusted their positions in anticipation of a dovish shift from the Federal Reserve. The yen’s gains were also supported by stronger-than-expected second-quarter GDP growth in Japan, which has restarted speculation that the Bank of Japan may consider another rate hike this year. If USD/JPY declines further below the 144.00 level, the pair could head towards the next support around the August lows of 141.80-142.50.
  • Gold Holds Steady Amid Fed Uncertainty: Gold prices remained above the $2,500 mark on Wednesday, testing this key support level after retreating from its all-time high above $2,530 earlier in the session. Technical indicators, including the bullish 20 Simple Moving Average (SMA) at around $2,440, suggest that while a steeper decline is not imminent, a clear break below $2,500 could open the door for a deeper corrective move. Key support levels to watch include $2,496.40, $2,485.10, and $2,427.20, with resistance seen at $2,510.00, $2,523.50, and $2,535.00.

Market Movers:

  • Target (TGT) Surges on Strong Q2 Results: Target’s stock jumped 10.18% to close at $2.57 after the retailer reported fiscal Q2 earnings that exceeded Wall Street’s expectations. The company posted an adjusted EPS of $2.57, surpassing the consensus estimate of $2.18. Target also raised its full-year adjusted EPS forecast to $9.00-$9.70, up from a prior range of $8.60-$9.60, which fuelled investor optimism.
  • Macy’s (M) Plummets Following Lowered Sales Forecast: Macy’s shares dropped 12.87% after the retailer revised its full-year net sales forecast downward to $22.1 billion-$22.4 billion, from an earlier estimate of $22.3 billion-$22.9 billion. 
  • TJX Companies (TJX) Climbs on Strong Sales Growth: TJX Companies’ stock rose 5.22% after the company reported Q2 comparable sales growth of 4%, significantly higher than the consensus estimate of 2.73%. The retailer also raised its full-year comparable sales forecast to 3%, from a previous estimate of 2%-3%, which boosted investor confidence.
  • Franklin Resources (BEN) Drops Amid SEC Probe: Franklin Resources experienced the biggest decline in the S&P 500, falling 12.45% after news surfaced that Ken Leech, co-chief investment officer of Western Asset Management (a subsidiary of Franklin Resources), is taking a leave of absence due to an ongoing SEC investigation. This development caused significant concern among investors.
  • American Express (AXP) Declines 2% Following Downgrade: American Express saw its stock fall 2.08% after Bank of America Global Research downgraded the stock from “buy” to “neutral.” Concerns over the company’s growth potential in the current economic climate contributed to the stock’s decline.
  • Bank Stocks Slide as Economic Concerns Mount: The financial sector came under pressure on Wednesday, with notable declines among major bank stocks. KeyCorp (KEY), Citigroup (C), Wells Fargo (WFC), Discover Financial Services (DFS), and Capital One Financial (COF) each closed down more than 1%, as worries about the broader economic outlook and potential regulatory issues weighed on the sector.

As markets absorbed the implications of the latest Fed meeting minutes, investors were slightly optimistic, with hopes for a September rate cut driving gains in key indices like the S&P 500 and Nasdaq. However, mixed economic signals, including a significant downward revision in nonfarm payroll growth and a sharp drop in oil prices, kept market participants on edge. The rally in European markets and the strong performance of certain sectors highlighted resilience amid uncertainty, while the decline in major bank stocks reflected underlying concerns. With attention now turning to upcoming statements from the Fed Chair, the market remains ready for further volatility as it navigates economic data and monetary policy expectations.