Stocks climb, yields fall as data supports rate cut bets

It was a shot straight up on all the indexes as a series of lukewarm economic reports combined with encouraging remarks from Fed officials once again bolstered hopes for rate cuts this year. Contractions in manufacturing and the U of M report showing weakening consumer confidence added to the rate cut optimism. The S&P hit another record high for a second day. At 12.6 billion, volume was again considerably above average. 

Stocks climb, yields fall as data supports rate cut bets

By Sinéad Carew and Caroline Valetkevitch

Fri March 1, 2024 5:18 PM

DJ: 38,996.39  +47.37         NAS: 16,091.92  +144.18       S&P: 5,096.27  +26.51     2/29

DJ: 39,087.38  +90.99         NAS: 16,274.94  +183.02       S&P: 5,137.08  +40.81     3/1

NEW YORK, March 1 (Reuters) - A global equity index scaled a record high while Treasury yields fell sharply on Friday after weak U.S. economic data and comments from Federal Reserve officials bolstered expectations for interest rate cuts later this year.  The Institute for Supply Management (ISM) said its manufacturing PMI fell to 47.8 last month from 49.1 in January, the 16th straight month that the PMI remained below 50. This indicates contraction in manufacturing.  The University of Michigan surveys of consumers showed all three measures for sentiment, current conditions and consumer expectations falling more than expected.  Also on Friday, Fed Governor Chris Waller kindled hopes for lower interest rates, saying decisions about the ultimate size of the Fed balance sheet have no bearing in its inflation fight rate policy.

On Thursday, the U.S. personal consumption expenditures (PCE) report was in line with expectations and showed annual inflation growth the smallest in three years.  "When you take all of it together, you're seeing the balance tilting a little bit more toward the likelihood of there being more rate cuts, which has supported equities," said Sinead Colton Grant, chief investment officer at BNY Mellon Wealth Management.  She also said equities drew support from a stronger-than-expected earnings season and enthusiasm about artificial intelligence.  Investors appeared to shrug off a note of caution from Richmond Federal Reserve President Thomas Barkin, who said U.S. price pressures still exist and it is too soon to predict when the Fed will cut rates.  On Wall Street, the S&P 500 closed at a record high for the second day in a row, with a strong boost from the technology sector and falling Treasury yields adding to bullishness.

The Dow Jones Industrial Average (.DJI), opens new tab rose 90.99 points, or 0.23%, to 39,087.38, the S&P 500 (.SPX), opens new tab gained 40.81 points, or 0.80%, to 5,137.08 and the Nasdaq Composite (.IXIC), opens new tab gained 183.02 points, or 1.14%, to 16,274.94.

MSCI's gauge of stocks across the globe (.MIWD00000PUS), opens new tab rose 5.81 points, or 0.76%, to 767.09 and hit a record high.  The STOXX 600 (.STOXX), opens new tab index closed up 0.6% after Eurostat figures published showed inflation across the 20-nation euro zone eased to 2.6% in February from 2.8% a month earlier.

In U.S. Treasuries, yields fell sharply including two-year yields' biggest daily decline since the end of January after the manufacturing data and Waller's suggestion of the need for more shorter-dated Treasuries.  The 2-year note yield, which typically moves in step with interest rate expectations, fell 11.1 basis points to 4.5354%, from 4.646% late on Thursday.  The yield on benchmark U.S. 10-year notes fell 6.6 basis points to 4.186%, from 4.252% while the 30-year bond yield fell 4.7 basis points to 4.3285% from 4.375% late on Thursday.

In commodities, oil prices settled higher and posted weekly gains as traders awaited an OPEC+ decision on supply agreements for the second quarter while they weighed U.S., European and Chinese economic data.  U.S. crude settled up 2.2% at $79.97 a barrel and Brent finished at $83.55 per barrel, up 2% on the day. 

Per the CBOE, volume was again considerably above average at 12.6 billion shares traded.