"Following the September 18 FOMC meeting, the Fed initiated its first step toward monetary easing with a 25 basis point rate cut while keeping its "data-dependent" message intact. This development has had two simultaneous effects on the index: borrowing costs have peaked, allowing financial conditions to gradually loosen and support valuations; at the same time, the absence of aggressive rate cuts has made the market's advance more sustainable rather than explosive."
"In such an environment, the Dow-heavily weighted toward cyclical and value stocks-tends to benefit when real interest rates decline while growth remains positive. Recent economic data suggests that while the economy has weakened, it continues to sustain mixed performances across sectors without tipping into recession. Manufacturing and services PMIs have softened, reflecting slower demand, while housing has shown resilience, with New Home Sales surpassing expectations, signalling that rate-sensitive sectors are starting to adjust to looser financial conditions."
The Dow Jones has maintained upward momentum since April and has consistently set new highs since late August as monetary policy, real economic conditions, and corporate earnings quality aligned more favorably. The Federal Reserve cut rates 25 basis points on September 18 while remaining data-dependent, loosening financial conditions without prompting an explosive rally. Lower real yields and positive growth tend to favour the Dow's cyclical and value composition. Recent data show softer PMIs but resilient housing, indicating a slowdown without recession. Upcoming GDP, jobless claims, and Core PCE releases will influence the Fed's further easing path and equity support.
Read at London Business News | Londonlovesbusiness.com
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