U.S. equity markets reached new highs following July's cooler-than-expected inflation data. This has increased expectations for a substantial rate cut by the Federal Reserve in September, now pegged at 93.3% probability. CFRA Research's Sam Stovall noted a shift in market sentiment to 'easing expectation' mode after the July Consumer Price Index. U.S. Treasury Secretary Scott Bessent anticipates a 50-basis point cut to initiate a series of rate reductions. UBS analysts warned markets to be aware of potential volatility spikes with the Volatility Index back to 14.6.
"After yesterday's 'not as bad as it could have been' July Consumer Price Index report, the equity markets are now in full 'easing expectation' mode," said CFRA Research's chief investment strategist Sam Stovall.
"I think we could go into a series of rate cuts here, starting with a 50-basis point rate cut in September. If you look at any model (it suggests that) we should probably be 150, 175 basis points lower," said U.S. Treasury Secretary Scott Bessent.
According to the CME FedWatch tool, the odds we'll see a sizable rate cut are now up to 93.3%.
With the Volatility Index now back to 14.6, markets should be mindful of the potential for volatility spikes, according to UBS.
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