On Friday Eastern Time, the three major indexes of the US stock market collectively closed down. As of the end of the day, the Dow Jones Industrial Average fell 377.49 points from the previous trading day, closing at 40287.53 points, a decrease of 0.93%; The S&P 500 stock index fell 39.59 points to close at 5505.00, a decrease of 0.71%; The Nasdaq Composite Index fell 144.28 points to close at 17726.94, a decrease of 0.81%.
The Dow Jones Industrial Average has risen by 0.72% this week, with three consecutive weekly gains; The Nasdaq has fallen by 3.65% cumulatively; The S&P 500 index has fallen 1.97% cumulatively, ending its second consecutive weekly uptrend and recording its largest weekly decline in three months.
Most large technology stocks have fallen, with Tesla falling over 4%, Intel falling over 5%, Gexin falling nearly 5%, Texas Instruments and ASML falling over 3%, Nvidia and AMD falling over 2%, Netflix falling over 1%, and Google and Amazon falling slightly; Apple and Meta have seen slight increases.
The three major European stock indices also fell across the board on the same day, with the Financial Times 100 Index closing at 8155.72 points on the 19th, a decrease of 49.17 points or 0.60% from the previous trading day. The CAC40 index of the Paris stock market closed at 7534.52 points, a decrease of 52.03 points or 0.69% from the previous trading day; The DAX index of the Frankfurt stock market in Germany closed at 18171.93 points, a decrease of 182.83 points or 1.00% from the previous trading day.
The probability of the Federal Reserve cutting interest rates in September has increased significantly
The outlook for the Federal Reserve's monetary policy remains a concern. Federal Reserve Chairman Powell previously stated that the Fed will not wait until the US inflation rate slows down to its target of 2% before cutting interest rates. If we wait too long, inflation may be too low, far below 2%, which is not what the Federal Reserve wants to see.
When asked if the obstacles to interest rate cuts have been cleared, Powell said that although he is not yet ready to make a statement, he is confident in it and the recent data is encouraging.
Federal Reserve Chairman Powell may make this more clear at the policy meeting on July 30-31, but it is not a certainty.
On Friday, the third in command of the Federal Reserve and President of the New York Fed, Williams, stated that the Fed is committed to achieving its 2% inflation target, and officials have been clear on this matter. Let the long-term trend of low neutral interest rates remain intact. Future actions will be defined by more severe and frequent shocks.
Williams was the heavyweight figure among Federal Reserve officials who delivered the final speech before the July meeting. The Federal Reserve will hold its FOMC policy meeting on July 30-31, with a period of silence before the meeting.
A previously released survey showed that economists have lowered their expectations for inflation in the first half of 2025 in the United States and expect the unemployment rate to slightly rise. They expect these factors to prompt the Federal Reserve to start lowering interest rates.
Specifically, interviewed economists believe that the year-on-year increase in the Federal Reserve's most favored inflation indicator, the core personal consumption expenditure (PCE) price index excluding food and energy, will reach 2.6% by the end of the year, lower than last month's forecast of 2.7%, and the overall PCE price index will be 2.4%, lower than last month's 2.6%.
Economists also expect an average unemployment rate of 4.2% in the fourth quarter, compared to last month's expectation of 4.1%. They believe that there is a 30% chance of an economic recession occurring within the next 12 months, which is much lower than the forecast from a year ago, but the quarterly growth rate may not exceed 2%.
Kathy Bostjancic, Chief Economist of Nationwide Mutual Insurance Co., stated that unless there is unfavorable inflation data in July or August, the Federal Reserve will be prepared to start cutting interest rates in September.
Bostjancic said, "We believe that looser policies are necessary because the labor market is showing signs of easing. Lowering interest rates may help avoid larger and deeper cracks in the labor market
Goldman Sachs: US stocks may enter a period of adjustment
Although the probability of interest rate cuts has increased significantly, the trend of the US stock market has a hint of being included in the expectation of interest rate cuts in advance.
Scott Rubner, Managing Director and Tactical Strategist of Goldman Sachs' Global Markets division, straightforwardly stated that the S&P 500 index has no way out and can only decline.
In a memo sent to clients on Wednesday, Lubner mentioned that based on data since 1928, July 17th usually marks a turning point in US stock returns. The following month of August is usually the worst month for passive investments and mutual fund outflows.
Goldman Sachs' trading team has been insisting since early June that due to seasonal weakness, market positions, and all positive news being digested by the market, the (US stock) index is on the brink of a summer correction.
Lubner stated that after a series of record high performances, the US stock market is exposed to the risk of weak capital inflows and is susceptible to negative news. He further explained that there is no expected inflow of funds from passive investors or mutual funds in August. For trend tracking system funds, the position has reached its maximum size, which means there is no room for further purchases.
[align center] (CTA position has reached its highest level since 2021, source: Goldman Sachs)