(Sept 10): Key US stock indexes erased earlier losses to close at record highs on Tuesday as traders bet that a downward revision to past jobs numbers boosts the chances of accelerated rate cuts by the Federal Reserve.
The S&P 500 Index, which fell after the revision of the jobs data, ended the session 0.3% higher in New York. Google parent Alphabet Inc. was among the biggest contributors to the index gains after an executive said the company’s cloud business would see a $58 billion revenue boost by 2027.
The blue-chip Dow Jones Industrial Average rose 0.4% to mark its own record high, while the tech-heavy Nasdaq 100 Index climbed 0.3%, just short of a record.
The moves followed a release from the Bureau of Labor Statistics, which showed the number of workers on payrolls will likely be revised down by 911,000 for the 12 months through March. The revision came after weaker-than-expected labor market data last week, which has boosted bets on rate cuts.
“The jobs picture keeps deteriorating and while that should make it easier for the Fed to cut rates this fall, it could also throw some cold water on the recent rally,” Northlight Asset Management Chief Investment Officer Chris Zaccarelli said.
He added that this year’s bull market for stocks “has been extremely resilient” but warned “we could be approaching an inflection point where it is tested again.”
While the jobs numbers were revised lower, financial executives at a Barclays conference painted “an encouraging portrait of the domestic economy,” said Adam Crisafulli, founder of Vital Knowledge. David Solomon, CEO at Goldman Sachs Group Inc., said there was no need for the Fed to rapidly cut interest rates.
Traders already ramped up their expectations for rate cuts after disappointing labor market statistics last week.
“We may get some cuts but the Fed really has to maintain that inflation vigilance,” Jitania Kandhair, deputy CIO of solutions and multi-asset at Morgan Stanley Investment Management, said in a Bloomberg TV interview following the jobs numbers.
Producer prices and consumer price data are due Wednesday and Thursday, providing traders with additional clues on the pace of anticipated Fed rate cuts. A measure of small business optimism improved for August, data released Tuesday showed.
“This week’s inflation and jobs data may be the deciding factor on whether or not the Fed cuts rates by 25 or 50 basis points,” said Chris Kampitsis, managing partner at Barnum Financial Group. He said that a rate cut is “almost a certainty” but “the magnitude of the cut is still up for debate.”