U.S. stocks surged on Friday, September 13, 2024, bolstered by growing optimism that the Federal Reserve will execute a more substantial interest rate cut in its upcoming meeting. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all rallied, with major indices poised for weekly gains as expectations for a half-point rate cut intensified.

The S&P 500 gained 0.7%, while the Nasdaq Composite added the same percentage, marking the fifth straight day of growth for both indexes. The Dow Jones Industrial Average jumped 1.1%, equating to an increase of more than 400 points, largely driven by recovery in tech stocks and broader market optimism.

What’s Fueling the Rally

Traders are pricing in a 49% chance of a 50 basis point interest rate cut by the Federal Reserve, as new inflation and labor market data heighten expectations of a more aggressive monetary policy pivot. Just a day ago, there was only a 15% chance of such a cut, making today’s surge a direct reflection of this evolving outlook.

Additionally, reports from the Wall Street Journal and Financial Times suggesting that the size of the September 18 Fed rate decision is now "a close call" fueled Friday's bullish sentiment. Former New York Fed president Bill Dudley also backed the idea of a deeper cut, adding further weight to this prediction.

Market Movers:

  • Adobe (ADBE) fell after its AI-driven forecast failed to impress. Despite strong earnings, shares dipped as concerns grew over the company's slower-than-expected adoption of AI technologies.
  • Oracle (ORCL) continued to rise, thanks to a positive outlook fueled by rising demand for cloud services, reinforcing confidence in the company’s growth prospects over the next few years.
  • Boeing (BA) was one of the day’s biggest losers, sliding nearly 4% after factory workers at its Seattle hub went on strike. The work stoppage threatens production schedules and could lead to a credit rating downgrade if the strike is prolonged.

Bond Yields and Economic Indicators

The yield on the 10-year Treasury slipped by 2 basis points to 3.66%, while the 2-year Treasury yield hovered just above 3.58%. This decline in yields reflects a broader expectation of monetary easing, as investors anticipate the Fed's rate cut. Additionally, the University of Michigan Consumer Sentiment Index showed improving sentiment for the second consecutive month, bolstered by the perception that inflation is cooling.

Looking Ahead

Friday’s rally caps off a week of gains for U.S. stocks, fueled by growing certainty over the Fed's aggressive rate cut. While economic uncertainties remain, particularly around labor market conditions, the market is bullish on the prospects of lower borrowing costs, which could provide a significant boost to sectors like tech and consumer goods. Investors will be closely watching for more signals ahead of the Fed's decision on September 18, with attention focused on any last-minute data releases that could sway expectations.