U.S. markets and stock ETFs turned higher, paring early morning losses, as the recent round of disappointing economic data helped fuel bets that the Federal Reserve will more aggressively cut interest rates to support growth.
On Thursday, the Invesco QQQ Trust (NASDAQ: QQQ) was up 1.0%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) rose 0.4%, and SPDR S&P 500 ETF (NYSEArca: SPY) gained 0.6%.
The markets weakened in early trading after the Institute for Supply Management’s non-manufacturing activity index for September slipped to 52.6, a three-year low, from 56.4 the month before and below expectations of 55.0, Reuters reports.
However, equities rebounded mid-Thursday on increased bets the Fed could cut rates in October. According to CME Group’s Fed Watch tool, futures traders anticipated a 88.2% chance of an interest rate cut ahead, compared to a 39.6% expectation of cut on Monday. The Fed will hold its next policy meeting at the end of the month.
“The degradation of the data, especially the non-manufacturing data, kind of pushes that to the Fed doing another cut,” Kim Forrest, chief investment officer at Bokeh Capital Partners, told Reuters. “This is very familiar to the post-2008 world where we get bad news and the market rallies because we are anticipating a rate cut.”
“While the economic picture is uncertain, investors feel the Fed is providing an antidote to any of this economic uncertainty by lowering rates and stating that they’re going to remain accommodative if the economy shows weakness,” Jeff Kravetz, regional investment director at U.S. Bank, told the Wall Street Journal. “As long as you have the Fed on the side of the market with low rates, that’s really providing a backstop for investors.”
Looking ahead, investors are waiting on the employment numbers on Friday to get a better sense of where the economy is going and how the Fed could act.
“Friday’s employment report is crucial,” Jeff Sica, chief investment officer at Circle Squared Alternative Investments, told the WSJ. “If that number also comes in weak, that could lead to the next leg down in the market.”
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