Wall Street Indices Rise Amid Rate Cut Expectations Following Inflation Report:
S&P 500 Climbs for Fifth Consecutive Day, Recording the Longest Winning Streak in Over a Month

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Market Bets
Rate Cut

Green Light for Rate Cut
Anticipated Reports

Markets Bet on Less Than 35 Basis Points Rate Cut in September

Wall Street indices rose amid sustained bets that the Federal Reserve will begin cutting interest rates in September,
following a U.S. inflation report that aligned with expectations.
The S&P 500 index (S&P 500) climbed for the fifth consecutive day,
achieving the longest winning streak in over a month.
Most major sectors, led by financials and energy, also rose.
Meanwhile, Treasury yields remained within narrow ranges, and the dollar’s value stayed near its lowest levels in four months.

The Consumer Price Index (CPI) showed a trend toward price contraction,
relieving markets that are still reeling from last week’s downturn.
With a weakening labor market, the Federal Reserve is widely expected to start cutting interest rates next month,
However, upcoming data will likely determine the extent of the expected cut.

Expected Rate Cut Amount

Chris Larkin from E*Trade, a subsidiary of Morgan Stanley, said,
“The CPI may not have been as strong as the Producer Price Index (PPI) released yesterday,
but it likely won’t alter the overall picture.”
The main question is whether the Fed will cut interest rates by 25 or 50 basis points next month.
If most data over the next five weeks indicates economic slowing,
the central bank might opt for a more significant rate cut.

On the other hand, Krishna Guha from Evercore said that while the CPI for July wasn’t perfect,
it was good enough as it aligned with the quieter inflation data favored by the Federal Reserve.
He pointed out that the central bank has shifted its focus to broader outlooks and risk balance,
with negative employment risks dominating since the July jobs report.
He emphasized that “the Fed is now prioritizing labor data over inflation data,
and upcoming labor market data will determine how aggressively the Fed proceeds with rate cuts.”

The S&P 500 hovered around the 5455-point level, while the performance of major stocks was mixed,
with Nvidia and Alphabet shares declining. The “fear gauge” in Wall Street—VIX—continued its decline,
falling to 16 points after an unprecedented spike to 65 points last week.
Meanwhile, 10-year Treasury yields decreased by one basis point to 3.83%.
Swap traders expect a rate cut of less than 35 basis points in September.

Green Light for Rate Cut

Mark Hackett from Nationwide said that “calming macro concerns” are among the factors creating better conditions for stocks,
noting that the pressure from market declines has now “faded into oblivion.”

According to strategists at TD Securities, led by Oscar Munoz and Gennadi Goldberg,
the latest CPI report gives the Federal Reserve the green light to cut interest rates in September.
They stated, “Today’s CPI report is unequivocally good news for the Federal Reserve.”
With risks now evenly balanced or slightly tilted towards negative employment outcomes,
they expect the Fed’s next decision to entail the first rate cut.

Chris Zaccarelli from Independent Advisor Alliance believes the July CPI report essentially bears the message of “no new news is,
in itself, good news,” as markets were on edge. The Fed is looking to cut rates, but there is nothing in this report preventing them from doing so.

Seema Shah from Principal Asset Management said that the CPI numbers
remove any remaining inflation-related obstacles that might have prevented the Fed from starting a rate-cutting cycle in September.
However, the data also suggests limited urgency to cut by 50 basis points.

Florian Ilbo from Lombard Odier Investment Managers said the report offers little new information
to guide the Fed’s future decisions besides supporting the likelihood of a rate cut due to labor market concerns.

Anticipated Reports

Traders still expect a total monetary easing of just over one percentage point this year,
with three Federal Reserve policy meetings remaining this year.
In recent sessions, the market has been divided over
whether the September rate cut will be 25 or 50 basis points.

Brian Rose from UBS Global Wealth Management said,
“The inflation data was good enough to allow the Fed to begin cutting rates in September,
but it doesn’t give them a reason to cut aggressively.”
He added, “The decision on whether to cut by 50 basis points instead
of the usual 25 basis points could come down to the August jobs report.”

He also pointed out that Thursday’s upcoming retail sales figures represent another important data point,
with the primary downside risk to his base assumption of a soft landing being a decline in consumer spending.

Neil Sun, portfolio manager at BlueBay at RBC Global Asset Management,
commented, “The U.S. economy is slowing sustainably, and the labor market is showing some signs of slowing.
However, we are not overly concerned about short-term recession risks in the U.S.
We are prepared to cautiously take advantage of any dips resulting
from volatility if the underlying trends of easing inflation and sustainable economic slowdown in the U.S. continue.”

Wall Street Indices Rise Amid Rate Cut Expectations Following Inflation Report

Wall Street Indices Rise Amid Rate Cut Expectations Following Inflation Report

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