Federal Reserve cuts rates, S&P 500, Nasdaq hit new highs

The Big Number

The reduction in the Federal Funds rate so far this year.

Market Notes

The U.S. Federal Reserve cut rates for the third time this year, lowering the target range to 1.5%-1.75% from 1.75%-2.0%. Trade talks with China moved further towards a Phase 1 agreement. The October jobs report was strong, with nonfarm payrolls up by 128,000 compared to an expected 75,000.

The Markets’ Reaction

The S&P 500 (SPX) was up 1.5% to a record high, slightly outperforming both emerging and developed markets. Bond yields fell and the curve flattened, suggesting that traders are expecting additional rate cuts next year in spite of Fed Chairman Powell’s assurance that monetary policy is “in a good place.”

What this means

While they’re on hold for the moment, the Fed still sees economic risks to the downside, indicating that the “Fed put” is alive and well. But with the trade picture improving, supportive economic data, and solid earnings, markets may move higher from here.

What to Watch

It’s the last big week for earnings, with 25% of the S&P 500 reporting. The U.S. non-manufacturing Institute for Supply Management Index (ISM) data is out on Tuesday and the global non-manufacturing Purchasing Managers Index (PMI) on Wednesday. China releases trade numbers on Friday.

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