Stocks and Bonds Climb on September Fed-Cut Wagers: Markets Wrap

(Bloomberg) — Wall Street traders kept piling into bets that the Federal Reserve will soon be able to cut interest rates, with stocks hitting all-time highs and Treasury yields falling alongside the dollar.

Just a day after a report showed benign inflation data, traders fully priced in a quarter-point Fed reduction in September, with some wagers pointing to a jumbo-sized move. Market expectations for policy easing also gained fuel after Treasury Secretary Scott Bessent’s remarks that “we could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September.”

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About 420 shares in the S&P 500 rose. While the index only eked out a gain amid weakness in most megacaps, Apple Inc. and Amazon.com Inc. rallied. The Russell 2000 of small firms jumped 2%. The Dow Jones Industrial Average added 1%. In late hours, Cisco Systems Inc. gave a lukewarm outlook. Two-year yields dropped five basis points to 3.68%.

Fed policymakers last month kept their benchmark at a target range of 4.25% to 4.5%. Bessent said officials might have cut rates if they’d been aware of the revised data on the labor market that came out a couple of days after the latest meeting.

“As the labor market continues to weaken, we think the US central bank will resume interest rate cuts next month, with 25-basis-point cuts at each meeting through January 2026 for a total of 100 basis points,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.

President Donald Trump said he may name the next Fed chair “a little bit early” and added that he was down to three or four potential candidates as he looks for a successor to Jerome Powell.

“As the market continues to digest the shift in the trajectory of the real economy following the combination of July’s inflation and employment data, it follows intuitively that the question has become: how large of a cut should Powell deliver?” said Ian Lyngen at BMO Capital Markets.

“We don’t expect a 50 basis-point move, although we certainly see scope for a meaningful probability of one to be priced in during the coming weeks,” he added.

After a “not as bad as it could have been” consumer price index, the equity market is now in full “easing expectation” mode, noted Sam Stovall at CFRA.

“We still project 25 basis-point cuts to the Fed funds target range at the September and December Federal Open Market Committee meetings, with a pause in October,” he said.

To Rick Rieder at BlackRock, while the latest inflation report was a bit stronger than we have seen over the prior few months, it was lower than many have feared. Rieder also noted he’s still heartened by the trajectory of some core areas of inflation that are running at lower levels than in the prior few years.

“As a result, we expect the Fed to begin cutting rates in September, and it could be justified cutting the Funds rate by 50 basis points, to get it more aligned with longer-term inflationary expectations and some of the productivity enhancement we are seeing across multiple industries,” he said.

“Stocks are seeing another boost higher as tariff fears are less than expected, earnings are strong, and prospects for a fall Federal Reserve rate cut are rising,” said Rich Mullen at Pallas Capital Advisors. “While we believe it still makes sense to stay invested, much of this year’s stock gains are likely already in.”

Mullen noted that inflation has been tame, and while many businesses have been able to avoid passing on higher costs to consumers, there are still questions on how much longer this trend can last. The big risk for the Fed is the possibility that inflation spikes suddenly from tariffs, he said.

“Just because the inflation data has remained calm, doesn’t mean it can’t spike in the future,” Mullen said.

To Mark Hackett at Nationwide, the path of least resistance for the market is higher as the S&P 500 broke out of the recent trading range.

“Retail investors are increasingly validated in the buy-the-dip approach, given the speed of the recovery from the recent selloff, potentially creating a self-fulfilling prophecy the next time the market experiences a minor selloff,” he said.

The latest reading on consumer prices showed underlying US inflation accelerated in July — but the cost of tariff-exposed goods didn’t rise as much as feared.

A report on producer prices due Thursday will offer insights on additional categories that feed directly into the Fed’s preferred price gauge — which is scheduled for later this month.

“Tariff-related costs are still being absorbed by corporate profit margins rather than passed on to consumers, giving the Fed room to pivot without sparking inflationary risk,” said Fawad Razaqzada at City Index.

Some companies have been holding off on price increases for fear that consumers will pull back on spending, which will heighten interest for Friday reports on retail sales and consumer sentiment.

Corporate Highlights:

Treasury Secretary Scott Bessent said the recent deal to allow Nvidia Corp. and Advanced Micro Devices Inc. to resume lower-end AI chip sales to China, on the condition they give the US government a 15% cut of the related revenue, could serve as a model for others. Apple Inc. is plotting its artificial intelligence comeback with an ambitious slate of new devices, including robots, a lifelike version of Siri, a smart speaker with a display and home-security cameras. Top US chip-equipment supplier Applied Materials Inc. was sued by a rival in China over what that company characterized as trade secret theft, a further escalation in the technology war between the world’s two largest economies. Amazon.com Inc. plans to offer same-day grocery delivery in 2,300 cities by the end of the year, more than doubling the current number and marking its latest attempt to muscle into the $1 trillion grocery industry led by its top retail competitor Walmart Inc. Tesla Inc. is looking to hire someone to test its driver-assistance technology on the streets of New York City, suggesting the carmaker could be looking to expand its ride-hailing services to the largest US metropolis. Oracle Corp. is cutting jobs in its closely watched cloud unit, the latest company taking steps to control costs amid heavy spending on AI infrastructure. Tencent Holdings Ltd. promised prudence in AI spending despite faster-than-anticipated growth across its gaming and advertising businesses, suggesting the company intends to adopt a more measured approach to artificial intelligence development than many of its global rivals. A union representing workers at Boeing Co.’s St. Louis-area defense factories urged US lawmakers from Missouri to intervene and nudge the planemaker to reach a deal. Bullish jumped 84% from the IPO price after the digital-asset exchange operator and owner of media outlet CoinDesk raised $1.1 billion in an initial public offering. Gildan Activewear Inc. agreed to buy US underwear maker Hanesbrands Inc. — aiming to double its annual sales — for about $2.2 billion in cash and stock. Webtoon Entertainment Inc. announced a partnership with Walt Disney Co. that will bring iconic characters such as Marvel’s Spider-Man and Luke Skywalker of Star Wars to its platform. What Bloomberg Strategists say…

“Increased talk of a potential half-point Fed cut in September is turning into a double shot for risk assets — boosting risk appetite while promising easier financial conditions ahead. Layered on top of a post-CPI volatility crush, that’s helping drive the SPX towards 6,500 into Friday’s August options expiration.”

—Michael Ball, Macro Strategist, Markets Live

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Some of the main moves in markets:

Stocks

The S&P 500 rose 0.3% as of 4 p.m. New York time The Nasdaq 100 was little changed The Dow Jones Industrial Average rose 1% The MSCI World Index rose 0.5% Bloomberg Magnificent 7 Total Return Index fell 0.3% The Russell 2000 Index rose 2% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.2% to $1.1700 The British pound rose 0.5% to $1.3574 The Japanese yen rose 0.3% to 147.46 per dollar Cryptocurrencies

Bitcoin rose 2.2% to $122,794.7 Ether rose 2.6% to $4,742.67 Bonds

The yield on 10-year Treasuries declined five basis points to 4.23% Germany’s 10-year yield declined six basis points to 2.68% Britain’s 10-year yield declined four basis points to 4.59% The yield on 2-year Treasuries declined five basis points to 3.68% The yield on 30-year Treasuries declined five basis points to 4.83% Commodities

West Texas Intermediate crude fell 0.6% to $62.76 a barrel Spot gold rose 0.3% to $3,358.02 an ounce ©2025 Bloomberg L.P.