Stocks Rise, Yields Fall as Fed Skips Bets on Data

Wall Street traders orchestrated a surge in the stock market, causing bond yields to retreat, driven by economic reports that fueled speculation of an impending pause in the Federal Reserve's interest-rate hikes scheduled for September.

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The S&P 500 index advanced towards its lengthiest winning streak in a month, surpassing the 4,450 mark. The ascent was propelled by a rally in major players like Tesla Inc. and Nvidia Corp., resulting in a 1.5% increase in the Nasdaq 100. Notably, yields on the two-year Treasury, which exhibit heightened sensitivity to imminent policy adjustments, witnessed a decline of 14 basis points to reach 4.9%. In tandem, Bitcoin demonstrated a 5% rally as a US court paved the way for the inaugural exchange-traded fund tracking the cryptocurrency.

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Analyses of swap contracts revealed diminishing wagers on a Federal Reserve rate hike within the year 2023, accompanied by an elevated probability of a rate reduction in the first half of 2024.

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Recent data unveiled that US job openings plummeted below expectations to 8.83 million, marking a nadir not observed in over two years. This provides fresh substantiation of a waning labor demand. A separate report indicated a notable decline in consumer confidence, registering the most significant drop in two years. Souring perspectives on employment prospects, augmented borrowing costs, and persistent inflationary pressures collectively curtailed optimism.

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Jeffrey Roach, Chief Economist at LPL Financial, commented, "The Fed reiterated its commitment to be data-dependent, and with reports like this, the Fed can most likely keep rates unchanged in September. Investors should expect a softening labor report this Friday, further cementing the thesis that the Fed is getting close to finishing its tightening cycle."

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