Commentary
US and European markets experienced mixed reactions following a Federal Reserve rate cut, reflecting both optimism and caution. In the US, stock indexes, including the S&P 500 and Dow Jones, surged to record highs after the Fed’s decision to reduce rates by 50 basis points. This marked the beginning of what many expect to be an extended period of rate cuts, the first since March 2020. While the initial response to the cut was muted, investor sentiment improved midweek, leading to broad market gains. Positive economic data also buoyed confidence, with retail sales exceeding expectations and jobless claims declining. However, concerns lingered over the housing market, where existing home sales fell, though building permits rose.
Bond markets reacted similarly, with modest increases in US Treasury yields following the Fed’s decision. The corporate bond market saw tighter spreads and strong demand, especially in high-yield sectors, which rebounded after the rate cut.
In Europe, the European STOXX 600 Index ended the week slightly down. Major European indexes like Italy’s FTSE MIB and France’s CAC 40 saw modest gains, but the UK’s FTSE 100 declined. The Bank of England held its key rate at 5.0%, amid steady inflation and rising service prices. The European Central Bank (ECB) remained cautious, with officials emphasizing a gradual approach to policy easing due to persistent inflationary pressures.
