Wall Street Rises as Rate Cut Anticipation Grows, Markets Near Record Highs

Rate cut stock market/ Wall Street Fed decision/ Federal Reserve rate cut expectations/ Newslooks/ NEW YORK/ J. Mansour/ Morning Edition/ U.S. stocks inched closer to record highs on Tuesday, with the S&P 500 and Dow Jones Industrial Average both rising as investors awaited a likely interest rate cut from the Federal Reserve. Mixed economic data, including a surprise rise in retail sales, left Wall Street divided on how large the Fed’s cut will be. Major stocks, including Intel and Microsoft, posted gains, pushing the market upward.

Wall Street Gains as Rate Cut Speculation Grows Quick Looks:

• U.S. stocks near record levels ahead of a Federal Reserve decision on interest rates.
• S&P 500 rose 0.4%, just 0.2% below its July record; Dow Jones set a new record Monday.
• Intel shares gained 2.2% on news of expanded partnerships and business plans.
• Treasury yields remained steady despite mixed retail sales data.
• Investors expect a significant Fed rate cut, with some betting on a larger-than-usual half-point reduction.

Wall Street Rises as Rate Cut Anticipation Grows, Markets Near Record Highs

Deep Look:

Wall Street stocks climbed higher on Tuesday as investors remained focused on the Federal Reserve’s upcoming interest rate decision, with U.S. markets edging toward record highs. The S&P 500 gained 0.4% in early trading, placing it just 0.2% below its all-time peak set in July. Meanwhile, the Dow Jones Industrial Average added 116 points, or 0.3%, building on Monday’s record. The Nasdaq composite was up 0.7%.

The upward trend comes amid growing anticipation that the Fed will announce a major rate cut on Wednesday, marking its first such move in over four years. The Federal Reserve has kept interest rates at their highest levels in two decades in an effort to cool inflation. Now, investors are split on the size of the expected cut, with some predicting a traditional quarter-point reduction, while others are betting on a larger half-point cut to provide a stronger economic boost.

Major companies contributed to the market’s rise, with Intel jumping 2.2% after unveiling an expanded partnership with Amazon Web Services to produce custom chips, along with plans to strengthen its foundry business. Microsoft also surged 1.8% after announcing a 10% dividend increase and a $60 billion stock buyback program, further fueling market optimism.

Despite mixed economic data, Tuesday’s gains suggest that investors remain cautiously optimistic. The U.S. Commerce Department reported a slight increase in retail sales for August, surpassing expectations. However, when excluding automobiles and fuel, sales were slightly below economists’ predictions, leaving some uncertainty about the true strength of consumer spending.

“This data isn’t going to decide the issue for the Fed, one way or the other,” said Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, regarding the retail sales report.

A separate report released later in the morning indicated that U.S. industrial production rebounded in August, beating expectations and further suggesting that parts of the economy remain resilient.

Treasury yields remained largely unchanged, with the 10-year yield steady at 3.62%, the same as late Monday. The two-year yield, which is more sensitive to Federal Reserve moves, edged up to 3.59% from 3.56%.

Investors are watching closely as the Fed faces a delicate balancing act: cutting rates to stimulate the economy without reigniting inflation, which had been its primary concern over the past few years. Critics of the central bank are divided, with some arguing the Fed may be moving too slowly to provide relief to a slowing economy, while others warn that cutting rates too aggressively could lead to inflationary pressures.

Wall Street is betting on a larger-than-usual cut, with data from CME Group showing traders believe there’s a stronger probability of a half-percentage-point reduction rather than the traditional quarter-point cut. As the economy shows signs of slowing down, particularly in the job market, any decision by the Fed will be closely scrutinized by investors.

In international markets, Japan’s Nikkei 225 fell 1%, with a strengthening yen hurting the prospects of Japanese exporters. Meanwhile, European markets were mostly higher, and markets in mainland China and South Korea were closed for holidays.

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