Fed's Dovish Shift Sparks Market Rally: All Eyes on Jobs Report for ETF Moves
Amid slowing inflation, mild monetary policy shifts, and a higher chance of a soft landing, major stock indices climbed in August.
The S&P 500 gained 2.3%, the Dow Jones Industrial Average rose 2.0% to a record high, and the Nasdaq Composite added 0.7%. U.S. value stocks (+3.0%) led the gains, followed by international developed stocks (+2.9%) and U.S. large caps (+2.3%).
Bonds performed well, with investment-grade corporate bonds up 1.8%, high-yield bonds rising 1.6%, and the U.S. aggregate bond index gaining 1.5%. Gold (+2.1%) outperformed commodities, while oil fell 4.4% and silver slipped 0.2%.
Powell Hints at Dovish Fed Shift
At the Jackson Hole Symposium, Fed Chair Jerome Powell signaled a dovish stance, suggesting rate cuts are on the horizon. With CPI and PCE reports showing disinflation progress, Powell expressed confidence that inflation is returning to the 2% target. He emphasized rate cuts will depend on upcoming data and the evolving economic outlook, while also noting signs of a softening labor market.
As of September 2, the CME’s FedWatch tool indicates a 100% chance of a September rate cut, with a 68% likelihood of a 25-basis-point cut and 32% for a 50-basis-point cut.
Key Jobs Report to Impact ETF Trading
The nonfarm payrolls report could determine the Fed’s next move. Its impact on Fed policy will also influence bond markets, with the 10-year Treasury yield at 3.76%, near its mid-2023 low. The iShares 20+ Year Treasury Bond ETF (TLT) has attracted strong interest from investors expecting lower rates.
Expect high trading volumes for SPY, QQQ, and TLT on Friday as investors react to the jobs report and its policy implications.
$SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ(QQQ)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $ProShares UltraPro Short QQQ(SQQQ)$ $ProShares UltraPro QQQ(TQQQ)$
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