Stock market indices S&P 500 and Nasdaq soar to all-time highs, propelled by optimistic expectations of September interest rate reduction
Market Recap: September 2021
In a mixed day of trading, the S&P 500 and Nasdaq hit record highs, while the Dow Jones Industrial Average came close to an all-time high. The Russell 2000 index, which tracks rate-sensitive small-cap companies, also saw a significant gain, reaching a six-month high.
The S&P 500 posted 32 new 52-week highs, with the Nasdaq Composite recording 110 new highs. However, it's worth noting that both indices also had two new lows.
CoreWeave, a company backed by Nvidia, slumped 12% after reporting a bigger-than-expected quarterly net loss. Nvidia was flat, while Advanced Micro Devices rose 5.8%.
Paramount Skydance jumped 19% and is up over 24% this week, after winning exclusive broadcasting rights to the Ultimate Fighting Championship for seven years.
Amazon.com and Tesla were up over 1.5% each. The CBOE volatility index dropped to its lowest since January, at 14.46, indicating a calmer market.
Gains in megacap companies contributed to the record highs. Signs that U.S. tariffs on imports have not fully filtered into headline consumer prices came as a relief for investors.
Investors are increasingly confident that the Federal Reserve could restart its monetary policy easing cycle next month. Traders are fully pricing in a 25 basis points interest rate cut, according to the CME's FedWatch Tool. However, the Fed would have to respond to labor market weakness, according to Thomas Hayes, chairman at Great Hill Capital LLC.
Investors will scrutinize remarks of Chicago Fed President Austan Goolsbee, a Federal Open Market Committee voting member this year. The Fed's expected monetary policy in September 2021 was to begin moving away from the ultra-accommodative stance of the pandemic years and prepare for rate increases to address sustained high inflation.
Markets are factoring in recent weakness in the job market and a shake-up at the Federal Reserve. Donald Trump and European leaders are expected to hold a virtual meeting on the Russo-Ukraine conflict, two days before the U.S. president meets Russian President Vladimir Putin.
On the NYSE, advancing issues outnumbered decliners by a 3.82-to-1 ratio, while on the Nasdaq, the ratio was 2.45-to-1.
In a broader context, the Fed's shift from a forceful tightening stance in September 2021 marked a significant adjustment from early 2021 expectations, as inflation proved higher and more persistent than initially projected.
References: [1] Federal Reserve's monetary policy in September 2021: https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210921.pdf [2] The Fed's frameworks responding to inflation and employment data: https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210921.pdf
- Trader's expectations for the Federal Reserve's monetary policy are high, as they are fully pricing in a 25 basis points interest rate cut in the next month.
- The record highs in the S&P 500 and Nasdaq could be attributed to gains in megacap companies, while the Dow Jones Industrial Average came close to an all-time high.
- Investors are closely monitoring the remarks of Chicago Fed President Austan Goolsbee, a Federal Open Market Committee voting member this year, as they may provide insight into the Fed's monetary policy in September 2021.
- The CBOE volatility index, a measure of market volatility, dropped to its lowest since January, suggesting a calmer market.
- CoreWeave, a company backed by Nvidia, experienced a major setback after reporting a bigger-than-expected quarterly net loss.
- Shifts in the Fed's monetary policy in September 2021, marking a significant adjustment from early 2021, are based on recent inflation data that is proving higher and more persistent than initially projected.
