US close: Stocks firmer as Powell signals rate cuts this year

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Foot Locker Inc.

$24.49

10:49 05/11/24

0.02%

$0.01

Wall Street staged a recovery Wednesday, with US stocks finishing higher after recent declines.

New York Community Bancorp Inc.

$10.51

10:49 05/11/24

-0.43%

-$0.05

Investor attention was focussed on labour market data and statements from the Federal Reserve chair.

The Dow Jones Industrial Average gained 0.2% to reach 38,661.05 points, while the S&P 500 index rose by 0.51% to close at 5,104.76 points and the Nasdaq Composite saw an uptick of 0.58% to settle at 16,031.54 points.

In currency markets, the dollar was last down 0.24% on sterling to trade at 78.52p, while it declined 0.36% against the euro to 91.78 euro cents.

The greenback also dropped on the yen, sliding 0.43% to last change hands at JPY 149.40.

“Equities have dusted themselves down after yesterday’s sudden drop, relieved that Powell’s testimony to US lawmakers has so far not revealed any unpleasant surprises,” said IG chief market analyst Chris Beauchamp earlier.

“‘Need more evidence’ is the Fed’s latest mantra, as it seeks to avoid cutting too early, but it seems stock markets are content with this.

“Should inflation start to pick up more sustainably, and Fed officials talk up rate hikes again, however, and the mood could shift dramatically.”

Fed chair confirms goals for rate cuts this year

In economic news, the chairman of the Federal Reserve reiterated his belief to Congress that interest rates were likely to see a downward trajectory this year, although the precise timing of the first rate cut remained uncertain.

In his semi-annual testimony before the House of Representatives, Jerome Powell emphasised the importance of achieving the Fed’s 2.0% inflation target before implementing any rate adjustments.

Powell also cautioned against delaying policy changes, warning that doing so could potentially weaken economic activity and employment.

Analysts noted that Powell's remarks provided little new insight beyond reiterating previous statements, with Ian Shepherdson, chief economist at Pantheon Macroeconomics, characterising much of the testimony as standard boilerplate language.

In response to questions from journalists, Powell said policymakers were not waiting for perfect data but rather for further positive indicators before making significant policy shifts.

Elsewhere, fresh data from the Department of Labor showed minimal changes in the U.S. job market at the beginning of the year.

Job openings saw a slight dip of 0.3% month-on-month to 8.863 million, with hiring also falling by 1.7% to 5.687 million.

Notably, the number of voluntary separations, or 'quits,' decreased by 1.6%, indicating potential fluctuations in Americans' confidence in the job market.

“The January Job Openings and Labor Turnover summary report is consistent with a labour market that is still quite strong, with job openings falling slightly and layoffs remaining low,” said Nancy Vanden Houten, lead US economist at Oxford Economics.

“The ratio of job openings to unemployed workers increased, pointing to stubborn excess demand for labour.

“A small decline in the quits rate points to a continued easing of wage pressures, which will be welcomed by the Federal Reserve.”

Across the Atlantic, the UK Chancellor announced fresh tax reforms in what was likely his final Budget before the next general election.

Chancellor Jeremy Hunt unveiled plans to cut National Insurance and overhaul the tax regime for non-domiciled residents.

The move to abolish non-dom tax status, a long-standing Labour policy, aligned with Hunt's goal of simplifying the tax system, while the reduction in National Insurance was set to save the average employee an additional £450 per year from April.

However, tax thresholds remained unchanged despite concerns over inflation.

Hunt also outlined changes to the non-dom tax regime, transitioning to a residency-based system by 2025 to ensure fairness in taxation.

Additional measures included extending the freeze on fuel and alcohol duty, reducing the higher rate of capital gains tax on residential property, and extending the child benefit salary threshold.

Foot Locker tumbles, NYCB rises on fresh investment

In equity markets, Foot Locker tumbled 29.35% after exceeding expectations in its fourth-quarter 2023 results, but deciding to lower its profit outlook for the 2024 financial year.

Although the athletic retailer managed to increase total sales by 2% in the final quarter of last year, comparable sales faced a slight 0.7% decline attributed to changes in brand mix and consumer softness.

Additionally, increased markdowns to reduce inventory resulted in a decrease in gross margins, leading to a decline in adjusted earnings per share.

On the upside, Crowdstrike Holdings increased 10.76% after surpassing expectations by outperforming both the top and bottom line with its quarterly earnings.

Similarly, New York Community Bancorp climbed 7.45% after announcing a successful equity investment of over $1bn, anchored by former Treasury secretary Steven Mnuchin’s Liberty Strategic Capital investment firm.

Under the terms of the deal, NYCB offered shares at $2, a 38% discount to Tuesday’s closing price.

Additionally, investors were offered convertible preferred stock with a conversion price of $2 and 60% warrant coverage to purchase non-voting, common-equivalent stock with an exercise price of $2.50.

Reporting by Josh White for Sharecast.com.

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