US stocks hold losses as Powell gives no hint of cuts

Jerome Powell

Wall Street saw fairly muted action as Federal Reserve Chair Jerome Powell offered no hints on whether he might support a rate cut at the central bank’s October meeting.

Stocks, bonds and the dollar barely budged after Powell said the outlooks for the labor market and inflation face risks, reiterating his view that policymakers likely have a difficult road ahead as they weigh further interest-rate cuts.

“Powell says nothing new,” noted Peter Boockvar at The Boock Report.

While most S&P 500 shares rose, the gauge edged lower as a gauge of megacaps underperformed. Ten-year yields slid one basis point to 4.13%. The dollar wavered. Crypto stabilized. Gold held its record. Oil climbed amid tensions between NATO and Russia.

Some policymakers are becoming more concerned about growing risks to the labor market, while others remain primarily worried about the possibility that above-target inflation could be pushed higher by tariffs and other policies.

Fed Governor Michelle Bowman said officials need to act decisively to bring down rates as the labor market weakens. Fed Bank of Atlanta President Raphael Bostic said he sees more inflation coming, echoing remarks from his Chicago counterpart Austan Goolsbee.

In economic news, US business activity expanded in September at the slowest pace in three months, while cooler demand limited the ability of companies to raise prices and offset tariffs.

Anthony Saglimbene at Ameriprise noted that since May, the 10-year Treasury yield has been on a bumpy decline, and the S&P 500 has posted strong gains over the same period.

Simply, lower rates make future corporate earnings more attractive when discounted to their present value — supporting higher equity valuations.

“Lower discount rates increase the present value of future cash flows for companies, making equities more appealing relative to fixed income alternatives, all else equal,” Saglimbene added.

Prospects of further rate cuts, surprisingly strong profit growth and enthusiasm for Big Tech companies that are capitalizing on artificial intelligence have all kept equities near their all-time highs.

The record-setting advance has pushed the S&P 500 nearly 3% above the average year-end forecast among those tracked by Bloomberg, which currently stands at 6,486. Only in 2024 and 1999 have the analyst calls lagged the market’s actual return so much around this time of the year.

“The bull market in equities is ‘alive and kicking’,” said Craig Johnson at Piper Sandler. “While we maintain our bullish outlook over the intermediate- to longer-term, we also recognize that the SPX has advanced for nearly five straight months without a material pullback.

His year-end S&P 500 price objective of 6,600 has recently been achieved, and short-term momentum has modestly eased. Johnson says he’ll review his year-end objective and look to establish a 2026 objective in the beginning of the fourth quarter.

The gauge hovered near 6,700.

Meantime, a burst of activity is powering the US IPO market toward its busiest month since the final innings of a manic 2021.

Klarna Group Plc and Netskope Inc.’s successful outings led the charge, lifting September’s US initial public offerings volume so far to $7.6 billion, excluding financial vehicles such as blank-check firms. Newly-public companies delivered a weighted-average return of 17%.