[New York Stock Market] Broad Rally on Rate Cut Hopes... S&P and Nasdaq Hit Record Highs for Second Day

September Rate Cut Seen as Inevitable After July CPI Falls Short of Expectations
Besant: "Fed Should Cut Rates by up to 1.75 Percentage Points Starting with a Big Cut in September"
U.S. Treasury Yields Plunge... 10-Year Falls 7bp
Focus on July PP

All three major indexes on the New York Stock Exchange rallied on the 13th (local time). Following the release of July inflation data, concerns over inflation eased and expectations for an interest rate cut grew, leading both the S&P 500 and Nasdaq indexes to close at record highs for the second consecutive day. Meanwhile, U.S. Treasury yields dropped sharply as Treasury Secretary Scott Besant called for a "big cut" (a 0.5 percentage point rate reduction) in September.

Reuters Yonhap News

On this day in New York, the blue-chip Dow Jones Industrial Average closed at 44,922.27, up 463.66 points (1.04%) from the previous session. The large-cap S&P 500 index rose 20.82 points (0.32%) to 6,466.58, while the tech-heavy Nasdaq gained 31.236 points (0.14%) to finish at 21,713.14, both setting new all-time highs for the second day in a row.

By stock, AMD surged 5.37%. Apple rose 1.6%. Paramount Skydance soared 36.74%. Bullish, a cryptocurrency exchange, skyrocketed 83.78% above its IPO price on its first day of trading on the New York Stock Exchange. On the other hand, CoreWeave, an AI data center company, and restaurant chain Cava Group each tumbled 20.83% and 16.56%, respectively, after reporting earnings that fell short of expectations. The Russell 2000 index, which is comprised of small-cap stocks expected to benefit from lower borrowing costs in the event of rate cuts, climbed 1.98%.

The rally was driven by heightened expectations for a rate cut in September. According to the U.S. Department of Labor, the Consumer Price Index (CPI) for July rose 2.7% year-on-year, matching the June figure (2.7%) and coming in below the market forecast of 2.8%. While President Donald Trump's tariff policies are impacting prices, the effect has proven less severe than anticipated, prompting investors to take a September rate cut as a given.

In the interest rate futures market, there is a 93.8% probability that the Federal Reserve will cut its benchmark rate by 0.25 percentage points from the current 4.25-4.5% at the September Federal Open Market Committee (FOMC) meeting. The probability of a total 0.5 percentage point cut by October is 64.2%, and the chance of a cumulative cut of 0.75 percentage points or more by December stands at 56.4%.

Ulrike Hoffmann-Burchardi, Chief Investment Officer (CIO) and Global Head of Equities at UBS Global Wealth Management, said, "With continued weakening in the labor market, the U.S. central bank is expected to resume rate cuts next month," adding, "We anticipate a 0.25 percentage point cut at each meeting, totaling a 1 percentage point reduction by January 2026."

Following the recent slowdown in employment and now milder-than-expected inflation, the Trump administration has stepped up pressure for rate cuts. In a Bloomberg TV interview, Secretary Besant argued that the Fed should begin with a big cut in September and ultimately lower rates by as much as 1.75 percentage points. He further emphasized that if the Fed had known in advance about the worsening employment data released two days after the July 30 FOMC meeting, "it might have cut rates in both June and July."

Following the July CPI release and Secretary Besant's remarks, U.S. Treasury yields have dropped significantly. The benchmark 10-year U.S. Treasury yield, a global bond market indicator, fell 7 basis points (1bp=0.01 percentage point) from the previous session to 4.23%. The 2-year Treasury yield, which is sensitive to monetary policy, dropped 5 basis points to 3.68%.

Strong corporate earnings are also being cited as a catalyst for the stock market rally. Ross Mayfield, investment strategist at Baird, commented, "This earnings season has been truly impressive," adding, "Despite all the headwinds throughout the summer, we've seen corporate resilience and excellent business diversification."

However, some warn that the market is focusing solely on expectations for rate cuts while overlooking negative factors such as labor market weakness and slowing growth. Warren Pies, co-founder of 3Fourteen Research, said, "There is a seasonal buying trend at the beginning of August, and investors are too hastily misinterpreting this as a summer rally that everyone wants to believe in," adding, "I think concerns about the labor market and growth outlook are being missed."

Investors are now turning their attention to the July Producer Price Index (PPI) and retail sales data scheduled for release this week. The PPI for last month, to be released on the 14th, is expected to rise 0.2% from the previous month, a larger increase than June's 0%. Retail sales, due on the 15th, are projected to increase by 0.5%, a slight slowdown from June's 0.6% growth.