S&P Tops 5,200 as Fed Backs Rate-Cut View

Wall Street traders sent stocks to fresh all-time highs as the Federal Reserve signaled it’s on track to cut interest rates for the first time since the onset of the pandemic.

In a historic move, the S&P 500 topped 5,200 on speculation that the end of the most aggressive Fed hiking cycle in a generation will keep fueling corporate America’s profits. Gains in equities were almost broad-based, with areas that have been lagging this year — like small caps — rallying. Short-term Treasurys outperformed, with traders now seeing higher odds of a first rate cut in June.

Fed officials maintained their outlook for three cuts this year and moved toward slowing the pace of reducing their bond holdings, suggesting they aren’t alarmed by a recent uptick in inflation. While Jerome Powell continued to highlight officials would like to see more evidence that prices are coming down, he also said it will be appropriate to start easing “at some point this year.”

“The sum total of this ‘no news is good news’ press conference is that markets continue to have a green light to run higher,” said Chris Zaccarelli at Independent Advisor Alliance. “This Fed isn’t going to stand in the way of the bull market.”

The tech-heavy Nasdaq 100 rose 1%. Two-year yields declined seven basis points to 4.6%. The dollar retreated.

Wall Street’s Reaction to Fed:

• Sonu Varghese at Carson Group:

The details are quite dovish, because they’re leaving rate cuts on the table even while projecting slightly higher inflation and more economic growth.

• Neil Birrell at Premier Miton Investors:

They want that soft landing and are playing the game to achieve it.

• Chris Zaccarelli at Independent Advisor Alliance:

The Fed statement and press conference didn’t break any new news other than on the balance sheet — and that’s very bullish for markets.

Investors were worried that the recent higher-than-expected inflation data would cause the Fed to back off from their projection of 3 cuts for this year and those fears were unfounded. In addition, Chairman Powell mentioned that they were thinking about slowing the pace of their balance sheet runoff.

The sum total of this “no news is good news” press conference is that markets continue to have a green light to run higher. We aren’t surprised to see the initial reaction from investors to be to push stock prices up and expect that to continue until some new shock hits the system because this Fed isn’t going to stand in the way of the bull market.

• Seema Shah at Principal Asset Management:

This Summary of Economic Projections suggests that the Fed is willing to risk cutting rates before inflation is close to target and while GDP growth is above-trend. History teaches us this is a risky path.

• Whitney Watson at Goldman Sachs Asset Management:

Despite recent bumps in the inflation road, major central banks remain on track for rate cuts in the coming months and high-quality fixed income bonds stand to benefit.

•  Michelle Cluver at Global X:

Overall, this was a highly encouraging set of data that fed into markets, increasing the probability that the Fed may lower interest rates as soon as the June FOMC meeting.

• Jason Pride at Glenmede:

Patience is a virtue, and apparently the preferred tactic for the Fed right now. Make no mistake about it, the Fed still has inflation firmly in its sights. Investors should expect rate cuts to come into focus once the Fed becomes more confident that inflation is in the neighborhood of it’s 2% target, which could happen in the back half of this year.

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