Stock markets are at a turning point. After the Federal Reserve paused interest rate cuts this year, that changed on Wednesday. Fed Chair Jerome Powell announced a 25 bps cut. The dot plot implied more will come.
Bond markets reacted with treasury yields rising. Debt investors may consider the 7-10 year treasury (IEF) or the 20+ year (TLT). Since stock markets priced in the cut for several months, the S&P 500 (IVV) fell by 0.10%. Nasdaq (QQQ) erased intraday declines of around 1% to close 0.33% lower.
Stock markets might reflect beyond future rate cuts. Investors already priced in one cut. Instead, it might focus on the risks of a worsening labor market ahead.
The FOMC said that labor supply declined, primarily from a drop in immigration. People from other countries are far less likely to want to work in the U.S. Immigration enforcement agencies have a deportation quota. That deters immigrants from coming.
Inflation rates remain elevated but are steady. The central bank said that it did not know if tariffs caused a one-time price increase or would keep adding to inflation rates.
U.S. GDP grew in the first half of this year. The Fed expects it to grow again next year. Bank stocks like Wells Fargo (WFC), Bank of America (BAC), and Citigroup (C) rose on the day.
Economic growth spurs higher transaction volumes, lifting bank profits. Brokerage stocks had a mixed day: Robinhood (HOOD) and Schwab (SCHW) rose, while Futu Holdings (FUTU) fell.
Expect modest performance in the S&P 500 index from here.
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