Investing.com — Wall Street looks set to continue its winning streak, helped by substantial inflows amid optimism that Fed Chairman Jerome Powell will discuss upcoming interest rate cuts at the Jackson Hole symposium later this week.
1. Powell struck a conciliatory tone in Jackson Hole
Confidence is returning to Wall Street as investors brace for what is expected to be largely dovish comments from Fed Chairman Jerome Powell at the U.S. central bank’s annual economic symposium in , Wyoming, later this week.
Markets recorded their best week of the year last week, with strong inflows in particular (see below), as recent positive data eased concerns about the prospect of a recession.
Powell will likely use Friday morning’s speech to outline the Fed’s rate-cutting strategy, Evercore ISI analysts said in a note, stressing that the central bank is prepared to implement significant cuts if needed.
“We believe Powell’s stance will be reassuring and consistent with a soft baseline of a 25-series, but he will signal that the Fed is open to 50 and the bar for that is not very high,” Evercore ISI said.
The investment bank expects Powell to affirm the Fed’s confidence that inflation will return to the 2% target, signaling that rate cuts could begin as early as September.
However, “we do not anticipate a firm decision on whether the first step will be a 25 or 50 bps cut,” Evercore ISI says. Instead, Powell is expected to suggest that the decision will depend on upcoming employment data.
The Fed has kept its benchmark overnight interest rate at the current range of 5.25% to 5.50% since last July.
2. Futures contracts should continue their winning streak
U.S. stock futures edged higher Tuesday, continuing a recent streak of gains amid confidence that the Federal Reserve will soon begin cutting interest rates, boosting activity in the world’s largest economy.
At 04:00 ET (0800 GMT), the contract was up 40 points, or 0.1%, climbed 6 points, or 0.1%, and rose 45 points, or 0.2%.
Wall Street’s benchmark indexes closed higher Monday, with one up nearly 1% and the other gaining 1.4%. Both indexes recorded their eighth consecutive positive session, the first for the S&P 500 since November 2023, and the longest streak for the Nasdaq since December 2023. The index gained 0.6%.
The economic data slate is largely empty on Tuesday, and investors will continue to focus on the Federal Reserve’s latest meeting on Wednesday and then Jerome Powell’s speech in Jackson Hole on Friday.
Home improvement retailer Lowe’s (NYSE:), while shares of cybersecurity company Palo Alto Networks (NASDAQ:) rose nearly 2% after posting better-than-expected results for the fiscal fourth quarter.
3. Paramount Global Gets Another Suitor
The battle to take over Paramount Global (NASDAQ:) has intensified with media executive Edgar Bronfman Jr. submitting a roughly $4.3 billion bid to acquire National Amusements, the company that owns a majority stake in the media giant.
The move threatens to undo a planned acquisition by David Ellison, the founder and CEO of Skydance Media.
Bronfman’s offer includes $2.4 billion in debt and equity for National Amusements, according to a Reuters report, and would also contribute $1.5 billion to Paramount’s balance sheet, which could be used to repay the debt.
Skydance reached an agreement last month to buy the Redstone family’s majority stake in the home of Paramount Pictures, the CBS broadcast network and MTV, and then merge with the larger publicly traded company.
The deal included a 45-day “look-out period” that allowed Paramount to solicit and evaluate other offers, but if Paramount selects another suitor, it will have to pay Skydance a $400 million breakup fee.
4. Substantial entries into the S&P 500 index
Investor sentiment has shifted significantly over the past week, leading to substantial inflows into the S&P 500 Index as positive economic data appears to have supported this renewed investor confidence.
US and US economic data reassured investors that the inflationary environment was easing, contributing to a more optimistic economic outlook and reducing fears of a prolonged inflationary period.
“Net positioning increased across all US indices as the S&P saw significantly larger and consistent new risk flows throughout the week. Notional positioning increased by nearly $18 billion, with the vast majority ($16 billion+) coming from new longs,” Citi analysts said.
“Nasdaq and Russell position flows followed a similar upward trend, but the magnitude of the flows was much smaller,” they added.
This influx of capital was accompanied by a marked reduction in short positions, with the increase pushing all short positions into loss territory. However, Citi notes that the risks associated with these short positions are mitigated by the relatively smaller size of these positions.
The Nasdaq, in particular, was under pressure due to losses on long positions, but these losses have now narrowed significantly, reducing pressure on investors and improving the overall earnings picture for the index.
5. Crude oil falls after Gaza ceasefire progress
Crude prices fell on Tuesday as geopolitical risks eased after progress on a possible Gaza ceasefire deal.
At 04:00 ET, WTI futures fell 1% to $72.94 a barrel, while the contract fell 1% to $76.88 a barrel.
US Secretary of State Antony Blinken said Monday that Israeli Prime Minister Benjamin Netanyahu had accepted a “transitional proposal” presented by Washington to resolve disagreements blocking a ceasefire deal in Gaza, and urged Hamas to do the same.
This indicates an increased likelihood of a ceasefire agreement, which would see market participants assess the risks of an escalation across the region, potentially affecting supplies to the oil-rich region.
Concerns over the outlook for Chinese demand continue to weigh, with the People’s Bank’s decision to keep its benchmark index unchanged disappointing some traders given the country’s recent weak economic data.
In the United States, the Fed will publish its estimate of American crude inventories later in the session.
