Stock Market Today: Stocks test record highs as Fed Chair Powell signals rate cuts

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U.S. stocks are holding onto firm early gains heading into the final hours of Friday trading, while Treasury yields and the dollar retreated, as investors reacted to a key speech from Federal Reserve Chairman Jerome Powell that could clarify the central bank's plans for autumn rate cuts.

Updated at 12:59 PM EDT

Fade the news

Stocks are still set to close out the day, and the week, on a high note, but had pared some of their earlier advances heading into the afternoon session, with the S&P 500 last marked 35 points, or 0.63% higher and the Nasdaq up 155 points, or 0.88%

"Powell has rung the bell for the start of the cutting cycle. The Federal Reserve now has strong confidence about inflation’s path forward – it is time to shift to the other side of the dual mandate, and labor market risks now have their full attention," said Seema Shah, chief global strategist at Principal Asset Management.

"Yet, the 'humility' that Powell notes is required is a direct nod to their continued data dependent approach. Powell has not pre-committed to a 50 basis point cut - the magnitude of the September move will be determined by the August jobs report," she added. "But make no mistake, if the labor market shows signs of further cooling, the Fed will cut with conviction.".

Updated at 11:46 AM EDT

What recession?

Lost in the market's focus on Powell's Jackson Hole speech was a surprisingly solid reading for new home sales last month, which the Commerce Department pegged at an annualized rate of 739,000 units, a 10.6% that blasted Wall Street's dour forecasts.

Paired with data from the National Association of Realtors earlier this week, which showed a surprise gain in existing home sales of 1.3% in July, some are betting that the broad swath of improvements will ensure firm third quarter GDP growth.

Goldman Sachs economists, in fact, lifted their Q3 tracking estimate to 2.5% following the home sales data and yesterday's solid PMI activity reading from S&P Global

Updated at 11:08 AM EDT

Bond rally

Bond market are rallying hard on the back of Powell's Jackson Hole address, but bets on an outsized 50 basis point rate cut in September are moving only modestly higher, with the bulk of the odds from the CME Group's FedWatch pointing to a 25 basis point reduction.

Benchmark 10-year Treasury note yields were last marked 5 basis points lower from prior to Powell's remarks at 3.801%, while rate-sensitive 2-year notes fell 6 basis points to 3.935%.

"The market was looking for confirmation that rate cuts will begin in September and any hint of whether the Fed is considering 50 basis points instead of the standard 25 basis point cut," said Carl Ludwigson, managing director at Bel Air Investment Advisors.

"As expected, Powell gave no firm indication of the size of the cut but made it clear that rates will begin to come down next month," he added. "Following Powell’s comments, the equity market rallied, and the dollar weakened, as his dovish tone suggested lower rates on the horizon without triggering panic."

Updated at 10:10 AM EDT

Powell boost

Stocks are extending their early gains after Powell dropped his strongest signal to date that the Fed will begin the first of a series of rate cuts next month in Washington.

"The time has come for policy to adjust," Powell said as part of his prepared remarks to the Jackson Hole symposium. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

The S&P 500 was marked 54 points, or 0.97% higher following the release of Powell's remarks, with the Dow rising 308 points and the Nasdaq gaining 233 points.

Updated at 9:37 AM EDT

Solid open

The S&P 500 was marked 35 points, or 0.64%, in the opening minutes of trading, while the Nasdaq added 143 points, or 0.81%.

The Dow jumped 220 points while the small-cap Russell 2000 gained 17 points, or 0.80%, with Powell's Jackson Hole speech firmly in focus.

"Powell will likely be happy to keep markets guessing on the size of the move in September, and we doubt he will want to push rate expectations for this year down further, given the near 100 basis points of easing already discounted by year-end," said Ian Shepherdson of Pantheon Macroeconomics.

Stock Market Today

Markets have been keying on Powell's speech, the keynote address to the Fed's annual central banking retreat in Jackson Hole, Wyoming, for much of the past month and gave back gains late yesterday amid concerns that he may deliver a neutral or even hawkish message when he speaks at 10 am Eastern Time.

Traders have locked in bets that the Fed will start easing its benchmark lending rate, which sits at a two-decade high of 5.375%, next month in Washington. But they are still uncertain as to the pace and scale of the expected cuts.

Part of that comes from a resilient domestic economy, which continues to defy recession forecasts, with another aspect tied to inflation slowly easing.

With global investors on edge and U.S. stocks within touching distance of their July all-time highs, Powell's speech is expected to be crucial for market direction, alongside next week's earnings from tech giant Nvdia ( NVDA ) , heading into the final months of the year.

"Powell is expected to lay the groundwork for the Fed’s first rate cut in over four years," said Adam Turnquist, chief technical strategist at LPL Financial. "Signs of reduced pricing pressures and cooling economic growth will likely be enough for policymakers to start reducing the target rate."

Related: Fed Chair Powell's Jackson Hole speech might disappoint markets

CME Group's FedWatch continues to put the chances of a 50 basis point cut next month at around 26.5%. Those odds will surely move quickly when Powell begins to speak, and they suggest that investors are betting on at least a full percentage point of reductions between now and year's end.

The market's key VIX volatility gauge is also on the move, rising 4.4% to $16.98 in overnight trading as markets braced for action in the wake of Powell's address.

On Wall Street, stock futures tied to the S&P 500 suggest an opening bell gain of around 29 points, with the Dow Jones Industrial Average called 145 points higher. The tech-heavy Nasdaq, meanwhile, is priced for a 150-point opening bell advance.

In the bond market, benchmark 10-year Treasury note yields were holding at 3.861% heading into the New York trading session, with rate-sensitive 2-year notes pegged at 4.008%.

The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.1% lower at 101.404, the lowest since late December

More Economic Analysis:

• Kamala Harris sees markets stars align against Donald Trump
• CPI report upsets betting on big Fed rate cut
• Main Street businesses push back on Wall Street recession gloom

In overseas markets, Europe's Stoxx 600 was marked 0.27% higher in Frankfurt, while Britain's FTSE 100 added 0.26% in London.

Overnight in Asia, the Nikkei 225 closed 0.4% higher in Tokyo following hawkish comments on rates from Bank of Japan Governor Kazuo Ueda, while the regional MSCI ex-Japan benchmarked edged 0.08% lower into the close of trading.

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