The Market Continues to Rally on Rate Cut Series Certainty
Investors are clearly bullish about the economy, but the September Consumer Sentiment will reveal if that view is shared.
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The market has been trending higher for many weeks in anticipation of a series of Fed interest rate cuts. A lower-than-expected CPI report and higher-than-expected weekly unemployment claims on Thursday erased any question about such a cut.
Fed fund futures are pricing in a 100% chance of a cut on September 17, a 90% chance of a cut on October 29, an 85% chance of a cut on December 10 and a 45% chance of a cut on January 28, 2026.
The odds of a cut have been running very high for a while, and the data released on Thursday didn’t really change anything, but investors celebrated nonetheless. The indices were tentative to start, but once the buyers jumped in, "fear of missing out" started to build, and it was a steady uptrend the rest of the day. The gains were sizable, with the indices hitting new all-time highs and 75% of all stocks advancing.
Small caps, which benefit the most from lower interest rates, were the leaders with a gain of 1.75% while the S&P 500 jumped 0.9% and the Magnificent Seven MAGS gained 1%.
The soft CPI wasn’t a big surprise, and conditions were good for some selling into the strength, but when momentum stayed strong, that sucked in more buyers and forced the bears to give up their dream of calling a top once again.
With the indices at all-time highs and a Fed cut a sure thing, it can be argued that the market has already fully priced in the good news. That may be a good argument in theory, but markets aren’t that rational, and equities are now running on emotion. Valuation may be questionable, but missing out on this strong action is driving the buyers and keeping things running. The buying accelerated in the last few minutes of trading and crushed any skeptics that may be left.
On Friday, September Consumer Sentiment will be released and will be particularly interesting given the very poor recent employment news. The stock market is reflecting a very positive view of the economy, but what do consumers think when it is getting much harder to find a new job?
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
